The sharpest fall in house prices since last summer occurred in April, as the recent rise in mortgage rates dampened demand.
Nationwide, a high-street lender, reported that prices fell by 0.4% last month. This was the second consecutive monthly decline and the biggest Nationwide had recorded since August 2023. The prices are only 0.6 percent higher than last year.
Robert Gardner, Nationwide’s chief economist said: “The decline likely reflects continued affordability pressures. Longer-term interest rates have risen in recent months and reversed the steep drop seen at the turn of the calendar year.”
The economists were surprised by the April drop, as they had predicted that prices would increase by 0.2%. The economists had predicted that the growth rate would drop to just 1.2 percent.
According to estimates from across the country, the average house price in the UK remains at £261,962, or about 4% below the peak of the summer of 2020.
Mortgage costs are much higher now than 18 months ago, and would-be buyers still struggle to afford a move.
Inflation has made it difficult to predict when the Bank of England will start reducing interest rates.
Lenders have begun to raise their prices, and first-time homebuyers are particularly affected. Rightmove reports that the average rate of a 95 percent loan-to value mortgage with a fixed two-year term is now higher than 6 per cent, for the first since November.
Censuswide, on behalf of Nationwide, conducted a study that revealed half of first-time homebuyers who had planned to move in the last year delayed their plans.
Most often, the reason given for delaying a purchase is that the house prices are too expensive. The high mortgage rates and extra costs associated with buying a house were also cited as reasons for delaying their purchase by prospective buyers.
The cost of living is a major factor in affecting the plans of many respondents to purchase a home. They haven’t been able save as much money as they had hoped.
Censuswide found that two-thirds had less than £10,000 in savings for a deposit. According to Nationwide, a 10% deposit on the typical home for a first-time buyer is approximately £22,000 Around 60 percent of first-time homebuyers have not saved even a quarter.
Imogen Pattison is an assistant economist with Capital Economics. She expects that affordability will improve throughout the year, resulting in a rise in house prices.
She said: “In the months to come, we expect mortgage rates to hover around the April levels, preventing a new surge in house prices,” in the short term.
If we’re right, and interest rates are cut more than expected this year, then mortgage rates could fall to just under 4 percent by the end of 2024 [from 4.8 percent at present], resulting in a 3 per cent increase on average for house prices.