UK house prices unexpectedly fell in August as unaffordability weighed on prices and high mortgage rates acted as a barrier to entering the market for first-time buyers.
Annual house price growth slipped slightly to 2.1%, from 2.4% in July, while month-on-month prices dipped by 0.1%, according to data released by Nationwide on Monday.
“The relatively subdued pace of house price growth is perhaps understandable, given that affordability remains stretched relative to long-term norms. House prices are still high compared to household incomes, making raising a deposit challenging for prospective buyers, especially given the intense cost of living pressures in recent years,” said Robert Gardner, Nationwide’s Chief Economist.
“Combined with the fact that mortgage costs are more than three times the levels prevailing in the wake of the pandemic, this means that the cost of servicing a mortgage is also a barrier for many. Indeed, an average earner buying the typical first-time buyer property with a 20% deposit faces a monthly mortgage payment equivalent to around 35% of their take-home pay, well above the long run average of 30%.”
Gardner continued to explain that a combination of falling borrowing costs and rising incomes should underpin the housing market going forward.
“However, affordability should continue to improve gradually if income growth continues to outpace house price growth as we expect, Gardner said.
“Borrowing costs are likely to moderate a little further if Bank Rate is lowered again in the coming quarters. This should support buyer demand, especially since household balance sheets are strong and labour market conditions are expected to remain solid. “