Nationwide HPI: toxic cocktail could kill off lingering optimism

Sarah Coles, head of personal finance at Hargreaves Lansdown, comments on the publication of the Nationwide HPI for June 2023, showing that a toxic cocktail could kill off lingering optimism.

Key points from publication:

• • House prices were up just 0.1% in June, and down 3.5% in a year. The average house price is £262,239.
  • A 10% deposit for a first-time buyer costs them 55% of gross annual income – lower than late 2022 (59%), but higher than just before the financial crisis.
  • 400,000 fixed-rate borrowers remortgage each three months, so a fifth will remortgage by the end of this year and two fifths by the end of 2024.
  • Nationwide calculates that for those coming off a two-year fix, a typical mortgage will cost £385 a month more, and for those coming off a five-year fix, it’ll cost £315 more.

Sarah Coles says:

“A toxic cocktail of ruinous property prices and devastating mortgage rates could kill off any lingering optimism over house prices.

“The market held it together in June, but this was before mortgage rate hikes took their toll.

“At the end of May, the average 2-year fix was 5.38% and the average five-year deal was 5.05%, according to Moneyfacts.

“In June, house-hunters with this kind of mortgage in their back pocket were treated to a bumper array of homes for sale and sellers who were desperate to do a deal.

“It’s these buyers who were prepared to pay house prices up 0.1% from a month earlier.

“By the end of June, things look very different. With the average two-year fix at 6.37% and the average five-year deal at 5.94%, it puts an enormous dent in affordability, and may well drive a huge number of buyers out of the market.

“Meanwhile, remortgagers face potentially disastrous rises in their monthly payments.

“The new rules will mean people can make a temporary change to their mortgage to get them through the next six months, but there will be those who can’t see any light at the end of the tunnel, and sell up.

“With hundreds of thousands of people remortgaging every few months, this could mean a steady flow of forced sellers undermining the market.

“So with significantly more homes for sale and fewer people prepared to buy them, we could be set for a grim few months. 

“There is still hope. There’s the chance that the market has overreacted.

“The Bank of England thinks we won’t need the kinds of rises that are currently being priced in, so if we get more signs of inflation starting to ease, we may well see mortgage rates fall.

“Meanwhile, the jobs market remains robust, and with rents still on the march, there will still be buyers keen to escape the rental trap.

“Whether this will be enough to protect the market from more serious price falls remains to be seen.”

Kindly shared by Hargreaves Lansdown

Main article photo courtesy of Pixabay