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Buyers Shift Towards Smaller Properties in Latest Nationwide HPI

Journalist: John Choong, InvestingReviews

ended 01. September 2023

August's Nationwide house price index was published this morning. Unfortunately, the average house price fell more than what the market had expected on an annualised basis (-5.3% vs -3.9%).

As such, Nationwide's Chief Economist Robert Gardner said:

"For owner-occupiers buying with a mortgage, there has also been a modest shift in the type of properties being purchased. While transactions are lower than pre-pandemic levels across all property types, the biggest decline has been in detached houses.

“There are signs that buyers are looking towards smaller, less expensive properties, with flats seeing a smaller decline. This shift may, in part, reflect the ending of the Help to Buy scheme, which helped those with a smaller deposit purchase a newly built home. Flats have also remained relatively more affordable; average prices have risen by only 13% since the onset of the pandemic, compared with 23% for detached properties.”

  • What does this mean for the housing market moving forward?
  • Perhaps more importantly, how will this impact individual housebuilders?
  • Which ones are likely to hold up better than others, or even benefit from this current trend?

8 responses from the Newspage community

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John Choong
Senior Equity Research Analyst at Investing Reviews
Considering the lagged effect of mortgage rates on HPIs, the mortgage turmoil in the summer from higher CPI and wage prints, could mean that house prices could be in for another rough couple of months ahead. That said, a supposed 'soft landing' is still achievable if mortgage rates continue to fall as they have over the past month. Nonetheless, this will be at the mercy of inflation moving forward.

With transactions shifting towards flats, the likely winners amongst the 'big four' builders would most likely be Bellway and Barratt, whose flats make up about a fifth of total completions. Meanwhile, Persimmon and Taylor Wimpey are likely to lose out given that flats only make up 9% of their completions.

That said, it's still worth noting that this isn't necessarily a pure indicator of how well each housebuilder will do as the affluence of each developer's customer base also plays a role, as has been the case with Berkeley.
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Justin Moy
Managing Director at EHF Mortgages
It's clear that the priorities of a homebuyer have moved to size over style, preferring a cheaper option over a detached property, to reduce the purchase price and mortgage payment. Builders will be looking to change plans on new developments to accommodate this shift in popularity, and will also look at more 1 or 2-bed properties to appeal to a wider market, to maximise sales in this difficult period. Having many large detached properties not selling or with deep discounts is not ideal.
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Platinum
Elliott Culley
Director at Switch Mortgage Finance
Inevitably in a time with rising mortgage costs and the cost of inflation also hitting every part of daily life, potential buyers are more considered in their buying approach. Bigger properties mean higher household bills and usually a larger mortgage. Many clients seeking a mortgage have had their borrowing capacity diminished by inflation and rising mortgage rates. Naturally smaller properties are looked at by potential buyers.
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Graham Cox
Director at Bridging Hub
When mortgage rates were dirt cheap, borrowers would often stretch themselves to borrow the maximum possible and buy the biggest property they could. Now, the opposite is happening, home buyers are thinking much harder about the level of debt they're taking on and larger properties are falling out of favour. Particularly as house prices havn't dropped that much yet, though it's likely we'll see 1%+ monthly falls very soon. Larger properties are also much more expensive to heat.
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Joe Garner
Founder & Managing Director at Joe Garner Consulting
In the realm of property dynamics, it's an empirical fact that as the price per square foot of a property escalates, your affordability diminishes in kind. A historical precedent of this phenomenon can be traced back to the 1980s and 1990s when the intensifying property market led to the subdivision of larger, established houses into smaller units.

This trend underscores a fundamental principle: as prices soar, property sizes tend to shrink, and homebuyers increasingly prioritise prime locations over the allure of a lower cost per square foot.
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Rhys Schofield
Brand Director at Peak Mortgages and Protection
The housing market is a very divided place. Affordable properties within reach of first time buyers have healthy demand boosted by downsizers looking for something more affordable, more expensive next stepper properties that people stretched to buy when rates were at historic lows are now a burden for many and less appealing whilst at the top end of the market when most deals are cash carry on regardless as mortgage rates make little impact. All this points to one of the fundamental issues of our time - the UK lacks affordable property and we need a national program to address this need.
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Imran Khan
Co-founder & CEO at QuantumLoopAI
The housing market is undergoing a seismic shift. As mortgage rates surge, affordability and buying power are being constricted. People are pivoting towards what they can realistically afford, inflating activity at the market's lower end. For housebuilders, especially in London, gone are the days of pre-selling new builds to overseas buyers; empty properties are now the norm. As such, they'll have to recalibrate prices and expectations. Margins will decline as they navigate this uncertain terrain. Any resilience will be found in schemes tailored for UK buyers and located outside London. Expect this trend to ripple through the market for the next 12-24 months as interest rates climb.
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Christian Duncan
Managing Director at Manchester Mortgage Centre
With interest rates continually increasing it was inevitable that the bigger property values were going to be affected. I don't believe we've seen the end of this yet.

What is interesting is the amount of detached properties coming to the market in comparison to the previous 12 - 18 months. Previously we have seen detached properties get snapped up on the day of listing for considerably more than the asking price. In August 2023 we are seeing these types of properties come to the market and be reduced several times before being labeled sold on Rightmove.

What this is doing is increasing the demand for affordable homes. Your typical 3-bedroom semi-detached property is getting more desirable as homeowners attempt to battle the increased costs of living and save some money.