According to Nationwide’s House Price Index, monthly house price growth came to 0.1% during August, a drop from 0.5% in July.
The report added that the average house price stood at £271,079 in August, which compares to £272,664 in July.
Robert Gardner, Nationwide’s chief economist, said: “The relatively subdued pace of house price growth is perhaps understandable, given that affordability remains stretched relative to long-term norms. House prices are still high compared to household incomes, making raising a deposit challenging for prospective buyers, especially given the intense cost-of-living pressures in recent years.
“Combined with the fact that mortgage costs are more than three times the levels prevailing in the wake of the pandemic, this means that the cost of servicing a mortgage is also a barrier for many. Indeed, an average earner buying the typical first-time buyer property with a 20% deposit faces a monthly mortgage payment equivalent to around 35% of their take-home pay, well above the long-run average of 30%.”
However, he said affordability should “continue to improve gradually” if income growth continues to surpass house price growth as expected.
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“Borrowing costs are likely to moderate a little further if bank rate is lowered again in the coming quarters. This should support buyer demand, especially since household balance sheets are strong and labour market conditions are expected to remain solid,” Gardner said.
Housing market ‘resilient’ but affordability pressures still in place
Karen Noye, mortgage expert at Quilter, said that while the housing market has “remained fairly resilient during the usual summer lull, affordability pressures are still weighing heavily”.
“Last week’s property transaction figures pointed to relatively steady buyer demand, with July seeing 95,580 residential transactions – a 4% increase compared to the same month last year. However, the most recent inflation print has complicated the outlook for interest rates. Mortgage rates have been easing slightly but typical fixed deals remain around 4%, keeping monthly payments elevated, and higher inflation will make the path to lower interest rates even longer,” she noted.
Noye said there was also speculation around Chancellor Rachel Reeves’ potential reforms, including possible levies on high-value homes or changes to capital gains tax on primary residences.
She said this could cause “hesitation among sellers” and would “tighten supply further and paradoxically push prices higher, worsening conditions for new entrants to the market”.
“While the economic backdrop remains challenging, today’s figures suggest the housing market is still managing to hold reasonably firm for now. Sustained momentum will depend on future interest rate decisions and whether upcoming policy decisions support or hinder market activity. Either way, without a significant increase in available homes and clearer policy direction, the market risks stagnation,” Noye explained.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said that five base rate cuts from the Bank of England, along with the easing of criteria, have helped make mortgage rates “more affordable and put buyers in a strong bargaining position”.
He added: “However, despite another rate cut in August, some lenders are now pricing upwards, including NatWest, Santander and Coventry, while HSBC has reduced rates. The mixed picture is down to rising swap rates, which underpin the pricing of fixed rate mortgages, and lenders not wanting to offer the best rates during the summer months when staff are on holiday and resources are limited.
“While mortgage rates will always bounce around, we are not expecting any significant reductions or increases in the short term. Those looking to buy this autumn should seek advice from a mortgage broker and ensure they get the right deal for their circumstances,” he noted.
