Price fall may be a drop in the ocean once mortgage rate rises kick in

Sarah Coles, head of personal finance at Hargreaves Lansdown, comments on the publication of the Nationwide House Price Index for May 2023, showing price fall may be a drop in the ocean once mortgage rate rises kick in.

Key points from publication:

• • House prices fell 0.1% in May – April had seen a small rise after seven consecutive months of falls. 
  • On an annual basis, house prices are down 3.4% in the year to May.
  • The average house price is £260,736. This is 4% below August’s peak.

Sarah Coles 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raised expectations that interest rates may have to keep rising, which forced hundreds of  mortgage products to be withdrawn from the market, and major lenders to hike rates.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.

“There are still some positives to cling onto.

“The Bank of England data shows mortgage approvals picked up in both February and March, so there are more buyers around, who are already armed with mortgage agreements.

“However, we need to put this into perspective, because approvals were still 20% below pre-pandemic levels.

“Meanwhile, jobs data still shows robust employment numbers, with an unemployment rate of 3.9% in March.

“While people are secure in their jobs, even in a tough market, there will be people who are still prepared to buy.

“However, 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.”

Kindly shared by Hargreaves Lansdown

Main article photo courtesy of Pixabay