Nationwide July 23 House Price Index

At long last the recent fall in house prices will achieve what people have long been asking for. This decline is helping improve affordability for first-time buyers, who have been struggling to enter the market due to high deposit requirements and rising costs of living. However, the spike in interest rates will no doubt throw a spanner in the works. The Treasury needs to take proactive steps to manage the mortgage market as products have become incredibly expensive, not just in interest rate terms, but also with product fees and arrangement fees doubling or trebling in recent times. This slowdown in house price growth was a long time coming and is a perfect opportunity to rebalance the market and prevent a potential bubble. While a fall in house prices does appear to be a headline-grabbing crisis, we see this as a perfect buying opportunity and are capitalising on the incredible value that is now available in the market.

Soaring borrowing and basic living costs are causing a huge drop in household wealth, denting confidence in the property market and creating enormous pressure on homeowners. As more and more mortgage product teaser periods come to an end and inflation continues to squeeze household budgets for key basic living costs it is likely activity and prices will drop further. Affordable housing and those in desperate need will be the real loser here as usual. High-interest rates and a planning system that is so broken that levels of development and supply of new homes are falling through the floor hardly inspire confidence. The Bank of England are almost certain to increase the base rate further to reduce inflation, albeit perhaps at smaller increments for a shorter period. Only once inflation has been tamed will we see housing markets recover.

Locally, in Norfolk, we are seeing sizeable reductions in asking prices. With the average Norfolk property being close to 10x the average salary, combined with eye-watering mortgage rates, there is no wonder there is a slowdown in the local area. This isn’t helped in many situations by agents valuing properties like it’s 2021 and buyers are cautious like it’s 2008. Until inflation is firmly under control, I struggle to see housing market conditions improving.

Locally in the Bristol area, we're seeing lots of property listings that came onto the market in mid or late June already cutting prices to attract buyers. Vendors of more expensive properties seem to be reluctant to acknowledge the state of the market and are largely leaving prices unchanged. They could be waiting a long time to find a buyer. If you need to buy now, the key is to think where property prices are likely to be in two years' time. My best guess is 20% lower in nominal terms, 30-35% after adjusting for inflation.

In Scotland, it has finally dawned on sellers that the market is perhaps not what they had expected, with a definite re-emergence of more frequent price changes and reductions during July. First-time buyers in particular remain active, however, and properties within the typical price bracket and areas popular with this sector continue to be competitive with offers above home report commonplace. There would appear to now be little doubt that the mid-to-high range of properties generally favoured by those moving up the ladder have seen a drop off in activity as many have chosen to sit tight during recent rate and economic volatility. The upcoming inflation data will be hugely significant in how the end of 2023 shapes up but with the expectation that the downward trend will continue, there is hope that we will see a flattening market rather than significant drops in house prices in Scotland. But overall, activity levels may remain subdued as people wait and see how things pan out.

The UK property market is currently defined by low activity levels, with volumes down over 50%. Many investors are waiting for buying opportunities, when more stock potentially hits the market as overleveraged homeowners sell up and downsize. Core inflation will determine where we go from here and hopefully that's not too far up on the rate front, as the base rate rises to date have already materially impacted affordability. House prices will continue to correct after sustained rises inflated by the Government during Covid.

Property market activity in July was relatively subdued overall, though international investors continued to be active. The slowdown in activity from domestic buyers was offset by increased demand from overseas investors. Rising interest rates have subdued demand but the supply of property in the UK is limited and further construction is becoming increasingly difficult to achieve. There is a backlog on construction due to numerous factors including fewer construction workers since Brexit, the COVID-19 backlog and the political upheaval in Eastern Europe, driving up raw material costs and causing supply chain issues.