UK house prices flatlining as mortgage rates rise, says Nationwide

UK house price growth flatlined in September with a stronger slowdown expected in the coming months as a combination of soaring inflation and mortgage rates makes moving unaffordable for many.

The latest snapshot from the building society Nationwide comes at the end of a torrid week for the housing industry as lenders pulled 40% of available mortgages from the market after Kwasi Kwarteng’s mini-budget last Friday.

Lenders began suspending products after the chancellor’s sweeping tax-cutting plans triggered a sell-off in financial markets and raised expectations for higher interest rates. The volatility made it increasingly difficult for lenders to price deals.

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A typical UK home cost £272,259 in September, a zero increase on the previous month and the first time house prices did not grow month on month since July last year, according to Nationwide.

Annual growth in prices dipped to 9.5% this month, the first time house price growth has slowed to single digits since last October.

Overall, 10 of the UK’s 13 regions recorded slower annual price growth in the third quarter of the year as the housing market cooled. The only regions to show an increase in annual house prices in September were the east Midlands, West Midlands and London.

“Headwinds are growing stronger, suggesting the market will slow further in the months ahead,” said Robert Gardner, Nationwide’s chief economist. “High inflation is exerting significant pressure on household budgets, with consumer confidence declining to all-time lows. Housing affordability is becoming more stretched.”

Gardner said a 10% deposit on a typical first-time buyer property was now equivalent to almost 60% of annual gross earnings – an all-time high.

Some commentators are expecting UK house prices could fall by at least 10% next year as the economy sinks into recession and mortgage rates rise sharply, making house moves unaffordable for many.

Around three in 10 (28%) of people surveyed between 14 and 25 September 2022 who are currently paying rent or mortgages said they were finding it difficult to make payments, according to data published on Friday by the Office for National Statistics.

“As interest rates are increasing and lenders are adjusting their affordability calculations, buyers who have not yet found a property may be facing a change in what they can afford,” said Matthew Thompson, the head of sales at Chesterton.

“As a result, many house hunters will be required to review their initial budget, whereby rising utility costs play yet another important factor to take into account. Many of London’s house hunters will see no other option but to compromise on property location and size.”

Avinav Nigam, a co-founder of the property investment platform IMMO, said in some parts of the UK the number of properties listed for sale had slumped by 15-20%.

Nationwide said the south-west of England remained the strongest performing region, with the average house price up 12.5% to £321,725 in the quarter to the end of September compared with a year ago. However, the rate of growth had slowed from 14.5% in the second quarter.

London remained the weakest performing region of the UK with growth of 6.7% in the third quarter, though this was an increase on the 6% growth recorded in the previous quarter. The average price of a property in London is £534,545, almost double the UK average of £273,135.

“Buyers can no longer match the inflated pandemic price expectations of many sellers and it is only a matter of time before this adjustment causes house prices to decline,” said Chris Hodgkinson, the managing director of the property investment firm HBB Solutions.

“Those currently looking to sell are advised to do so quickly because it won’t be long before their home is commanding considerably less, or failing to sell altogether due to an unrealistic asking price expectation.”