01 March 2023
If you are covering the Nationwide House Price Index, please see the following comment from Karen Noye, mortgage expert at Quilter:
"Nationwide statistics released this morning show a housing market ailing under the weight of the cost-of-living crisis. After not only surviving but thriving during the pandemic, inflation, higher energy costs and interest rate hikes are proving to be a perfect storm for house prices with them showing the first annual decline since June 2020 and the weakest growth in a decade.
"Considering quite how significant the shock to interest rates was after the mini budget the drop may be less severe than some might have anticipated. Part of the reason behind this is that mortgage rates dropped faster than originally predicted with fixed rates around 4% now with lenders in a race to the bottom to attract new customers. Sellers may now be in a more favourable financial position than originally anticipated, allowing them to only drop their prices marginally in a bid to achieve as much as possible. Conversely, buyers are looking at the economic backdrop and opting to sit on their hands forecasting prices to drop further. This is causing a deadlock. However, with interest rates set to rise again and the pain of energy bills still being felt, buyers are likely going to be the winners in this Mexican standoff with sellers having to drop prices to achieve a sale.
"With the budget only a matter of days away the government may be looking at ways to prop up the housing market once again. However, any big giveaways must be weighed against a certain sense of inevitability that the housing market is due a correction after its huge increases during the pandemic. Any further intervention such as an increase in the stamp duty relief on offer or even some more radical options to persuade people into buying might only stabilise house prices for the short term.
"How low prices go will be dependent on interest rates and how sticky inflation is. While it looks like we have gone over the peak of inflation it may still be sometime before we achieve the Bank of England’s aims of 2%. If inflation drops quickly then house prices may rebound faster too as the country is still dealing with a serious lack of stock. Over the long term, if the country wants to achieve more stable house prices that are affordable to future generations, then more properties must be built."
