Nationwide August 23 house price index

House prices are likely to continue falling for the rest of the year. A 'soft landing' touted by Nationwide last month is still entirely possible given the recent movements in gilt yields and the rollback in mortgage rates. That said, the cuts in mortgage rates will take time to flow through into house prices. Plus, rates are still way above their historical averages. But if inflation continues to moderate in the coming months, the decline in house prices may start to bottom out. This is due to the fact that real wages are finally trumping inflation, with spending power and disposable income rebounding swiftly. As such, housing affordability is now returning. This should serve as encouraging news for FTSE 100 housebuilders like Persimmon, as the ratio of house prices to average earnings has now declined to 5.4x from 5.8x last year for first-time buyers. Provided this trend continues with inflation falling, a rebound in the housing market could happen sooner rather than later.

The UK property market, especially in London, is extremely fragile. In August, we observed noticeably weaker demand, partly due to seasonal factors, but also reflecting larger economic uncertainties. Nationwide's hopeful narrative of a 'soft landing' seems increasingly optimistic given the slew of headwinds. According to Zoopla, we're on track for the lowest number of sales completions since 2012, and this underscores the market's vulnerability. This dampening is particularly noticeable in southern England where higher mortgage rates have deterred buyers. Vendors now know that realistic pricing is no longer optional but a necessity to close deals. The key determinants for house prices over the next 12 months will unquestionably be inflation, interest rates and the overall economic climate. The remortgage crunch looms larger by the day and could be the catalyst for forced sales, potentially at scale.

The property market is a shadow of what it was last year. The purchase market has really slowed down as the impact of high mortgage rates kicks in. Clearly, there are regional variations but the one constant is that only realistically priced properties will sell. The one thing supporting prices and favouring sellers, if only marginally, is the lack of supply. Many existing homeowners see this as a bad time to sell a house so there are not enough properties for sale to meet the demand.

Demand for property dropped off markedly in August. Far higher interest rates and uncertainty around house prices are the key drivers of the decline in activity, although there was also a huge amount of transactional volumes during the Stamp Duty holiday. The brutal reality is that most people are yet to feel the full force of their mortgage payments increasing as they are still on their previous mortgage deal of 1%-3%. My concern is that although mortgage rates are dropping slightly and levelling off, they are still significantly higher than what most mortgage borrowers are currently paying and we are yet to see the full impact of this. The remortgage crunch is very real. This is likely to trigger more people selling in a hurry before their current deal ends and they are faced with paying hundreds of pounds more a month they just can't afford. I think we will see house prices drop further this year as a result.

August was a quiet month for the property market with demand very subdued. Prices appear to be holding up well with no panic selling. The weakest part of the market seems to be landlords who are looking to exit as their returns are wiped out. However, the increased demand for rental property and the sharp uptick in rents seems to have stopped a rout in this particular sector. The outlook for the rest of 2023 remains unclear, and borrowers will assess inflation and interest rate numbers in the coming weeks. Should the economy stabilise and inflation start to fall, we may see a return of sellers to the market. The key thing for many buyers at present is affordability, in terms of the mortgage cost and associated bills and living expenses. They are looking for discounts from sellers when it comes to pricing to help with affordability.

In Scotland, the market seems determined to buck the trend elsewhere in the UK, with very little tangible evidence of a significant fall in prices, so far. Fuelled predominantly by a vibrant first-time buyer market, any correction in prices at the lower end of the market is negligible, with demand continuing to outstrip supply in this area and competitive closing dates sustaining prices above home report valuations. The middle market, however, is largely stagnant with very few sellers choosing to move and the very highest end of the market unappealing to many with current borrowing costs. The last quarter of 2023 is likely to be relatively quiet stability but as interest rates potentially edge down as the grip of inflation begins to recede, we could see a significantly more active purchase market in 2024.