The UK saw a decrease in average house price in January, according to Nationwide Building Society, marking the 5thconsecutive month of declines. The average property was priced at £258,297, representing a 0.6% decrease from December 2022. The annual growth of house prices slowed to 1.1% down from 2.8% in December. The building society cited strong economic headwinds and the affordability of mortgages, which is being impacted by higher interest rates and the cost of living, as reasons for the lack of momentum in the housing market. The affordability of mortgages is expected to remain challenging in the short run.
According to the Bank of England, mortgage approvals in December were 35,000, which is lower than expected and the lowest number since January 2009 (excluding pandemic lockdowns). The Nationwide Building Society reported that the decline in approvals was due to a slowdown in mortgage applications after the government’s mini-budget in September of last year. However, there are signs that mortgage rates are starting to improve, and longer-term interest rates have started to edge down which could result in lower mortgage prices and ease affordability pressures.
Mortgage rates increased in the UK last year due to interest rate hike by the Bank of England, to control the increasing cost of living. However, they reached a 14-year high of above 6% after a mini-budget by Liz Truss triggered panic in financial markets. Although the markets have stabilised and mortgage rates have decreased somewhat, they remain higher than a year ago. This, along with a combination of squeezed real incomes and weak consumer confidence, is affecting house prices which are still rising, but at a much slower rate. The UK housing market is expected to experience a 10% decline in prices over the next 2 years, as budgets get adjusted. Mortgages are less affordable in all regions compared to 2021, with the cost of servicing the typical mortgage as a share of take-home pay being at or above the long-run average. London and the South of England face the biggest affordability pressures, while Scotland and the North remain the most affordable regions.