According to Nationwide’s House Price Index, it is the largest annual decrease so far with annual house price decreases to this point have ranged between negative 1.1 per cent in February to negative 3.8 per cent in July.
Nationwide added that this represented an annual fall of around £146,000 on a typical home.
The report added that house prices fell by 0.8 per cent over the month, which is up from negative 0.3 per cent last month.
The average house price in the UK stands at £259,153, which is down from £260,828 in July and £273,751 in August last year.
Robert Gardner, Nationwide’s chief economist, said that the “softening is not surprising”, pointing to a rise in borrowing costs, which has muted housing market activity.
However, he said that a “relatively soft landing” was still “achievable” as unemployment was expected to remain low at below five per cent, with high proportion of fixed rates protecting borrowers and affordability testing ensuring those refinancing can afford payments.
“While activity is likely to remain subdued in the near term, healthy rates of nominal income growth, together with modestly lower house prices, should help to improve housing affordability over time, especially if mortgage rates moderate once the bank rate peaks,” he added.
Gardner continued that the number of completed housing transactions in the first half of the year was nearly 20 per cent below pre-pandemic levels and around 40 per cent down on the first half of 2021.
He noted that cash purchases had been “remarkably resilient”, with only “a slight decrease”, whilst mortgage purchases had fallen much more sharply.
He said that homemover completions with a mortgage were a third down on 2019 levels, first-time buyers were around a quarter lower and buy-to-let purchases with a mortgage were around 30 per cent down. Cash purchases were up two per cent.
The fall in mortgage activity “reflects mounting affordability pressures as a result of the sharp rise in mortgage rates since last autumn, which would not have affected cash buyers”. He said monthly mortgage payments for a first-time buyer with an average wage buying a property with a 40 per cent deposit would be 40 per cent of their take-home pay, which is up from average of 29 per cent.
Gardner said that buyers seemed to be opting for smaller, less expensive properties and flats were seeing a smaller decline compared to detached homes.
Higher mortgage rates are ‘hitting the property market for six’
Emma Jones, managing director of Frodsham-based independent mortgage broker, When The Bank Says No, said that “higher mortgage rates” were “hitting the property market for six”.
She continued that in the “new mortgage environment” was “brutal” and “borrowers now need to be savvy”.
“If the past few months have taught us anything, it’s that rate offerings are not around for long so if you like the look of a deal today, ensure you secure the rate now rather than miss out.
“It is positive to see more and more rate reductions on a daily basis but we need to see lower two-year deals as most borrowers don’t want to commit to five-year fixes at the moment, where most of the savings are,” Jones said.
Christian Duncan, managing director of the Manchester Mortgage Centre, agreed that the figures showed that the high mortgage rates were putting the property market “under phenomenal pressure at the moment”.
However, he said that while homemovers were being more cautious, it was still receiving first-time buyer enquiries.
“Since the mini Budget and with all the recent rate increases, first-time buyers have changed their mindsets and are no longer looking to borrow as much as possible but are coming forward with a maximum spend per month and looking to find a property that is in line with their budget.
“This can only be a good thing for the property market as a whole, as right now many borrowers are leveraged up to the hilt. The net effect of first-time buyers negotiating hard is that the top end of the market will likely contract,” Duncan added.
A ‘two-tier’ market emerging
Jeremy Leaf, north London estate agent and a former RICS residential chairman, added that cash buyers were “more dominant” in the market as house prices had stayed stable due to shortage of stock and more serious buyers, creating a “two-tier market”.
He continued: “Serious sellers are recognising they may not achieve exactly what was originally anticipated but, bearing in mind that four out of five are also buyers, they‘re concentrating on the difference between the two prices rather than headline figures.
“Those sellers refusing to recognise the new realities and that prices are softening, remain on the market and often have to accept lower than their original valuation in order to eventually achieve that move.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, said that until there was a “consistent and more considerable decline” in mortgage pricing, buyers relying on mortgages are “inevitably going to be more price sensitive in coming months” due to affordability concerns.
He added that with another 0.25 per cent increase in the base rate due next month the mortgage market was “not out of the woods just yet when it comes to rising mortgage costs”.
“However, a number of lenders have been reducing their fixed-rate mortgages on the back of better-than-expected inflation news. This has led to a calming of swap rates, which underpin the pricing of fixed-rate mortgages, after a period of considerable volatility and bodes well for further reductions in coming weeks,” Harris noted.
