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Annual house price growth slows with further dip expected

Annual house price growth slows with further dip expected
Anna Sagar
Written By:
Anna Sagar
Posted:
01/05/2024
Updated:
01/05/2024

House price growth in April slowed to 0.6% year-on-year, with the average house price standing at £261,962, a report has found.

According to Nationwide’s House Price Index, monthly house price growth was negative 0.4% in April, which is an increase from minus 0.2% in March.

The annual and monthly changes are the lowest so far this year.

Robert Gardner, Nationwide’s chief economist, said that the slowdown likely “reflects ongoing affordability pressures, with longer-term interest rates rising in recent months, reversing the steep fall seen around the turn of the year”.

He said that house prices are around 4% below the all-time highs recorded in the summer of 2022, after taking account of seasonal effects.

Half of prospective first-time buyers delaying plans

Gardner continued on to say that recent research from Censuswide, carried out on behalf of Nationwide, found that almost half of prospective first-time buyers have delayed their house buying plans in the last year.

The most commonly cited reason was house prices being too high, at 53% of respondents, with 41% pointing to high mortgage rates.

Around 84% of prospective first-time buyers said the cost of living had impacted their plans; for instance, by limiting the amount they could save for a deposit.

Nearly two-thirds said that they have between £0 and £10,000 saved towards a deposit. A typical 10% deposit for a first-time buyer property costs around £22,000.

Over half of the respondents said they would be willing to buy in another country where house prices were cheaper or where they would buy a bigger property.

Around a third said they would consider a smaller property than they initially wanted, and 28% would buy a property that needed work doing.

Of first-time buyers who have recently bought, 38% said they ended up compromising on the property, and within that, 40% bought a property to do up and 34% bought in a different area.

‘Ongoing affordability pressures’ impacting house price growth

Karen Noye, mortgage expert at Quilter, said that the “lack of momentum” in the housing market appears to be having a “knock-on effect on house prices”.

She continued: “House sales typically pick up in the spring, but ongoing affordability pressures appear to be dampening this trend this year. Given many lenders have upped their mortgage rates in recent weeks, we can expect this to continue and could see it translate into a further dip in house prices in the shorter term.

“Yesterday’s UK monthly property transactions data evidenced a continued stall in sales, and though we saw a minor 1% uptick in seasonally adjusted residential property transactions in March compared to February, rising to 84,200, this was still 6% lower than the level of transactions seen in the same period last year.”

Noye said that although the housing market was “suffering a relatively subdued period at the moment”, it might not last for too much longer, as there could be a “turning point” during the summer months that could “buoy house prices”.

“The Bank of England is expected to announce its first interest rate cut later this year, given inflation has continued making progress back down towards the bank’s 2% target, falling to 3.2% in March.

“The prospect of a cut could translate into lower mortgage rates, which could make moving home or taking the first step onto the property ladder more affordable and thus more attractive to prospective buyers who have been stuck in ‘wait-and-see’ mode,” she explained.

Noye said: “Despite the lull in house prices at present, the outlook for the housing market is starting to look a little more optimistic, particularly if the Bank of England cuts rates sooner rather than later.

“For those who are looking to purchase a property this year, it is important to seek professional mortgage advice to ensure you make the best possible decisions for your circumstances.”

House price falls can be ‘positive’

Anna Clare Harper, CEO of sustainable investment adviser GreenResi, said that when house prices were rising, it was “considered to create and be created by positive sentiment”.

“Ultimately, though, price rises ensure that housing is getting less affordable to first-time buyers. This is not exciting news, on the face of it, but small rises and falls in pricing month-on-month are actually a very positive thing.

“At a time of great difficulty – cost-of-living crisis, housing crisis and many other crises of confidence – it is a credit to the stability of the housing market that it remains relatively stable, when prices for other types of property such as shops and offices have taken bit hits, frequently 30-40%,” she said.

She continued on to say that it is unlikely that house prices will fall in the coming months, as housing demand is “driven by necessity” and many homeowners have no mortgage or need to sell at a price below valuations in previous years.

“Finally, with an election looming, this is ever more relevant: no political party will put in place policies that risk harming house prices, as this is guaranteed to lose votes. For this reason, fears of a house price crash are over-blown, whether they come from homeowners or elsewhere in the property market,” she added.

Tomer Aboody, director of property lender MT Finance, said that a drop in house prices has been partially created by a “lack of affordability among buyers and uncertainties around interest rates and inflation” and, therefore, “some stability or help is needed”.

“Whether this comes from reduced interest rates, more flexibility on mortgages or potentially some stamp duty reform, buyers need to feel confident that they can commit to a purchase and move.

“Although property prices are lower, when you put this in context, they’re only 4% below their peak in 2022, which means they’re still high and unaffordable in many instances. More volume of stock coming to market is needed, and would-be sellers need to be encouraged to move in order to help keep prices in check,” he said.