UK House Prices Decline in April, Affordability Concerns Mount
The UK housing market experienced a notable downturn in April, with prices falling by 0.4% compared to the previous month. This marks the second consecutive monthly decline and the sharpest drop since August 2023. Despite the decline, house prices remain marginally higher than last year, standing 0.6% above April 2023 levels.
The slowdown in the housing market is attributed to ongoing affordability pressures, driven by the recent increase in longer-term interest rates. This increase has reversed the significant fall in interest rates witnessed around the turn of the year, making mortgages more expensive for prospective buyers.
The April downturn surprised economists, who had anticipated a modest 0.2% price rise. Expectations for a slight decline in the annual inflation rate to 1.2% were also surpassed, with March's rate standing at 1.6%.
Nationwide estimates the average UK house price at £261,962, still approximately 4% below the peak observed in the summer of 2022. However, prospective buyers continue to grapple with affordability challenges, particularly as mortgage costs have surged compared to 18 months ago.
The winter saw a sharp decline in mortgage rates, anticipating Bank of England interest rate cuts. However, the uncertainty surrounding the timing of these cuts, amidst persistent inflation and high employment levels, has led lenders to raise prices in recent weeks. First-time buyers, in particular, face significant hurdles, with the average rate for a two-year fixed, 95% loan-to-value mortgage surpassing 6% for the first time since November.
Research conducted by Censuswide on behalf of Nationwide reveals that half of prospective first-time buyers who planned to move in the past year have postponed their plans. High house prices, elevated mortgage rates, and additional homebuying costs were cited as primary reasons for the delay.
The impact of the rising cost of living further compounds the challenge, with many individuals unable to save as much as they had hoped towards a deposit. Most respondents have less than £10,000 saved, falling short of the £22,000 typically required for a 10% deposit on a first-time buyer home.
Despite the current challenges, some experts anticipate improved affordability in the coming months, potentially leading to a rebound in house prices. However, sustained mortgage rate stability will likely keep demand subdued in the near term. Predictions suggest a modest increase in house prices, should interest rates be cut further than anticipated, potentially reaching a 3% year-on-year growth by the end of 2024.