September was the first month of no house price growth in more than a year, in the latest sign of rising inflation and mortgage payments starting to weigh on the housing market.
Typical house prices remained flat between August and September for the first time since July 2021, according to the Nationwide Building Society.
It was also the first time in almost a year that annual house price inflation has not been in double digits, although average prices were still up a robust 9.5 per cent to £272,259.
Housing affordability is becoming increasingly scarce as house prices and mortgage rates rise
Nationwide said 10 out of 13 UK regions saw annual price growth slowing in the July-September quarter.
Nationwide chief economist Robert Gardner said signs of a slowdown have emerged over the past month as the number of approved mortgages has remained below pre-pandemic levels and real estate agents have reported a drop in inquiries from new buyers.
Although the slowdown has been “moderate” so far, he warned that “headwinds are mounting” as rising mortgage rates are likely to cool the market further.
“High inflation is putting significant pressure on household budgets and consumer confidence is at an all-time low,” he said.
“Housing affordability is becoming increasingly scarce. Down payment requirements remain a major obstacle, with a 10 percent down payment on a typical first-time buyer home equating to almost 60 percent of annual gross income — an all-time high.
‘In addition, the sharp rise in prices over the last few years combined with the sharp rise in mortgage interest rates year-to-date has meant that the typical mortgage payment as a percentage of net remuneration is well above the long-term average.’
The slowdown comes ahead of this week’s turmoil in the mortgage market, which saw a wave of large lenders pulling mortgage deals from sale or raising interest rates.
Nationwide said 10 out of 13 UK regions saw annual price growth slowing in the July-September quarter.
Last Friday’s mini-budget sent shockwaves through financial markets, prompting the Bank of England to step in with a £65 billion bond-buying programme.
Lenders, struggling to price mortgages amid uncertainty, pulled many fixed-rate mortgage deals or hiked rates in anticipation of the bank raising rates significantly in the coming months.
On Tuesday, Nationwide increased its fixed rates with its two-year fixed rates starting at 5.59 percent for new customers moving and first-time buyers. The five-year fixed contracts for the same group now start at 5.19 per cent with a fee of £999.
Meanwhile, HSBC, Yorkshire Building Society and Santander suspended product offerings for new mortgage deals.
This is Money’s best mortgage rate calculator that can show you the deals you could apply for and what they would cost.
Mortgage turmoil: Lenders have closed many fixed-rate mortgage deals or hiked interest rates
Recently announced stamp duty cuts should boost demand in some regions, but experts seem to agree they are unlikely to offset the impact of higher mortgage rates on demand.
Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said: “The latest data from Nationwide suggests the stunning rise in mortgage rates is finally starting to weigh on buyer demand.
“Increasing the property tax threshold for stamp duty to £250,000 from £125,000 will do little to offset the affordability issues caused by the upcoming hike in mortgage rates.”
Nicky Stevenson, managing director of estate agents Fine & Country, said the pound’s depreciation could attract more foreign buyers to London.
“We know that the capital’s housing market does not always move in sync with the rest of the country and we expect interest from foreign investors to increase in the coming months,” she added.
Property platform Twindig’s Anthony Codling said it was unlikely that prices would continue to rise, but added: “The last time I said that was at the start of the pandemic and average house prices have risen by £56,000 since then.
Regional Tendencies
The Southwest remains the best-performing region, although annual house price inflation slowed to 12.5 percent in the third quarter from 14.7 percent in the previous three months.
Wales slowed annual price growth to 12.1 percent but remained the best-performing nation.
Price growth in Northern Ireland eased to 10.1 per cent, while Scotland saw annual growth slow further to 7.8 per cent, compared with 9.5 per cent in the summer quarter.
London remained the weakest performing region in the UK, although annual price growth edged up to 6.7% from 6%.
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