Capital Appreciation - new blow as Nationwide reveals growing slump

August saw a further softening in house prices which are now 5.3 per cent down on a year ago.

The Nationwide says this is the weakest rate since July 2009. 

Prices fell by 0.8 per cent over the past month, after taking account of seasonal effects.

Chief economist Robert Gardner says: “The softening is not surprising, given the extent of the rise in borrowing costs in recent months, which has resulted in activity in the housing market running well below pre-pandemic levels. 

“For example, mortgage approvals have been around 20 per cent below the 2019 average in recent months and mortgage application data suggests the weakness has been maintained more recently.

“Nevertheless, a relatively soft landing is still achievable, providing broader economic conditions evolve in line with our (and most other forecasters’) expectations.

“In particular, unemployment is expected to remain low (below 5.0 per cent) and the vast majority of existing borrowers should be able to weather the impact of higher borrowing costs, given the high proportion on fixed rates, and where affordability testing should ensure that those needing to refinance can afford the higher 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 Bank Rate peaks.”

Gardner says that in the first half of 2023, the number of completed housing transactions was nearly 20 per cent below pre-pandemic (2019) levels and around 40 per cent lower than in the first half of 2021 - though the latter reflects the boost to activity from pandemic-related shifts in housing preferences, the stamp duty holiday and ultra-low borrowing costs.

He adds: “An examination of the composition of transactions reveals that cash purchases, though down from the 2021 highs, have been remarkably resilient, while purchases involving a mortgage have slowed much more sharply.”

And he says there are signs that buyers are looking towards smaller, less expensive properties, with flats seeing a smaller decline. 

This shift may, in part, reflect the ending of the Help to Buy scheme, which helped those with a smaller deposit purchase a newly built home. Flats have also remained relatively more affordable; average prices have risen by only 13 per cent since the onset of the pandemic, compared with 23 per cent for detached properties.

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