In Nationwide’s House Price Review and Forecast, Robert Gardner, chief economist for Nationwide, said that housing making activity was “weak throughout 2023” as the total number of transactions was around 15 per cent below pre-pandemic levels.
This was even higher for those involving mortgages, which were down by around a quarter, revealing the impact of higher borrowing costs.
However, Gardner said that cash transactions were running above pre-pandemic levels.
Lower house prices and rising incomes not enough to offset high mortgage rates
Gardner added that house prices in November were two per cent lower than the same period in 2022, and 4.3 per cent below the all-time high reported in late summer 2022.
He said: “Even though house prices are modestly lower and incomes have been rising strongly, at least in cash terms, this hasn’t been enough to offset the impact of higher mortgage rates, which are still more than three times the record lows prevailing in 2021 in the wake of the pandemic.”
Gardner said that housing affordability was “still stretched” and a borrower earning the average UK income and buying a typical first-time buyer property with a 20 per cent deposit would have a monthly mortgage payment equal to 38 per cent of take-home pay.
He noted that deposit requirements “remain prohibitively high for many of those wanting to buy”, with a 20 per cent deposit for a typical first-time buyer home equating to 105 per cent of average annual gross income.
This is down from the high of 116 per cent recorded in 2022 but close to pre-financial crisis of 108 per cent.
House price outlook in 2024 more ‘encouraging’
Gardner said that there have been “some encouraging signs for potential buyers recently with mortgage rates edging down”.
He said: “Investors have become more optimistic that the Bank of England has already raised rates far enough to return inflation to target and will reduce rates in the years ahead. This shift in view is important, as it has brought down longer-term interest rates which underpin fixed mortgage rate pricing.”
However, he warned that a “rapid rebound” in activity or house prices next year was “unlikely”.
Gardner said that while cost of living pressures were easing and inflation below average wage growth, consumer confidence was still weak and new buyer enquiries were still subdued.
“Moreover, while markets are projecting that the next base rate move will be down, there are still upward risks to interest rates. Inflation is declining, but measures of domestic price pressures remain far too high,” he added.
Gardner said that a “combination of solid income growth, together with modestly lower house prices and mortgage rates, will gradually improve affordability over time, with housing market activity remaining fairly subdued in the interim”.
“If the economy remains sluggish and mortgage rates moderate only gradually, as we expect, house prices are likely to record another small decline (low single digits) or remain broadly flat over the course of 2024,” he concluded.
