By Debbie Franklin, Director of Tax and property tax specialist
In recent months, interest rate rises have made mortgages more expensive and rising inflation has reduced peoples' spending power, resulting in falling house prices.
The Nationwide Building Society published its figures for July (see here), which showed that after the dramatic rise in prices that resulted in the peak of August 2022, prices have since fallen by almost 5%.
The annual decline in house prices as at July 2023 was 3.8%, slightly more than the annual decline figure for June 2023 (3.5%). In other words, July saw a 0.2% month on month fall in house prices. The figures show that the largest price falls are in the South West and the smallest are in Northern Ireland.
Nationwide's report comments on affordability, saying that “a prospective buyer, earning the average wage and looking to buy the typical first-time buyer property with a 20% deposit, would see monthly mortgage payments account for 43% of their take home pay (assuming a 6% mortgage rate). This is up from 32% a year ago and well above the long-run average of 29%.”
Overall, buying a house has not become more affordable because asking prices have not decreased enough to balance out the increased mortgage interest rates. However, in the longer term, if wages increase faster than house prices do, buying a house could become more affordable.
It is uncertain whether we will see a housing price crash. Back in March, the Office for Budget Responsibility (OBR) predicted that house prices would decrease by 10% over the next two years and some commentators predict that further interest rate rises could cause steeper price falls this Autumn.
The Nationwide report, however, says that a so-called 'soft landing', in which house price growth is achieved in 2024, is still achievable given the fact that unemployment is still low (below 5%) and, overall, borrowers will be able to weather the interest rate storm because a high proportion are on fixed-rate mortgages.