7th
Jun 2023
An analyst comments on the latest house price index released last weekend and says it could be the warning sign that there will be a major drop in prices from autumn onwards.
The Nationwide claims that average house prices fell by 0.1 per cent in May following an unexpected monthly rise of 0.4 per cent in April; however when compared with May’s average house prices last year, it is down by 3.4 per cent.
The building society warns people to ready themselves for further falls if the Bank of England goes ahead with yet more interest rates rises.
The head of personal finance at a business consultancy Sarah Coles agrees and says: “House prices fell back very slightly in May, but this is a drop in the ocean compared to the flood of bad news that may lie in store if mortgage rates continue rising. The change in May is largely due to the seasonal adjustment - because prices were broadly flat. What matters is what comes next.
“Confidence had been slowly building in the property market this spring, as buyers and sellers convinced themselves that the horrors of inflation could be coming to an end, and that mortgage rates might continue to fall. However, higher core inflation figures raised expectations that interest rates may have to keep rising, which forced hundreds of mortgage products to be withdrawn from the market, and major lenders to hike rates. It may well have brought confidence crashing down.
“This isn’t going to be a repeat of the horrors we saw in the aftermath of the mini-budget. The market hasn’t been rocked to anything like the same extent. There’s also the chance that it has overreacted, and rate expectations start to fall back. However, we're likely to see mortgage rates move higher in the immediate future.
“We’re unlikely to see an overnight impact, because people still have mortgages in their back pockets, but we can expect this to filter through into less demand, lower sales, and weaker prices.”
However Coles says it is not all doom and gloom as there is some good news.
The Bank of England’s data shows during February and March mortgage approvals were on the up indicating there are more buyers around with mortgage agreements. This all sounds very positive but when compared to mortgage approvals it is 20 per cent lower than pre-pandemic levels.
Coles finishes by saying: “If you’re on the hunt for a home right now, it’s still well worth pushing for a good deal, to build yourself a cushion if prices fall further in the months ahead.”
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