A slowdown has already begun in the real estate market, despite house price data showing that values are continuing to rise, some housing experts have suggested.
Warnings that there is already a ‘gradual slowdown’ are in stark contrast to the latest real estate market growth figures, which show another double-digit annual increase.
Nationwide Building Society said home prices rose 11 percent in the year to July, from 10.7 annual growth in June.
But brokers say these retrospective numbers don’t reflect the reality of today’s real estate market, where interest rate hikes that led to a jump in mortgage payments and the inflation pain households feel are already taking effect.
Nationwide Building Society revealed house prices are up 11 percent in the year to July
Some real estate experts pointed to the discrepancy between the house price report figures and what’s happening on the shop floor.
North London broker Jeremy Leaf said: ‘The only surprise in these numbers is why it’s taking so long for the slowdown we’ve noticed in our offices over the past few months to be reflected in the numbers.
But don’t get me wrong, we’re seeing a slowdown in growth, not a major correction, as prices are still supported by a lack of choice and a strong labor market.
“However, still rising interest rates and pressure on the cost of living will have an increasing impact in the coming months.”
Some brokers have suggested that the real estate market is starting to slow down
Another broker – Savills – also highlighted the gap, explaining that the Nationwide numbers represent a different time period than what is happening now.
Lawrence Bowles, of Savills, said, “That rising figure is due more to what happened last year than to what’s happening now.”
He explains: ‘This year the monthly growth was 0.1 percent. While that means stronger growth than the price decline at the same time last year, it’s still a sustained slowdown from 0.2 percent the previous month and 0.9 percent the previous month’s growth.”
However, he went on to say he remains positive due to recent changes in how much buyers can borrow.
He said: “Changes in mortgage affordability criteria may mean there is more capacity for price growth further down the line. We have raised our five-year price forecast from 12.9 per cent to 17.4 per cent, despite the headwinds the UK economy is currently facing.”
A rapid escalation in mortgage rates may have added hundreds of pounds a month to the cost of buying the same property as a year ago.
Financial data provider Moneyfacts said the average two-year fixed-rate mortgage was 3.74 percent in July, up from 2.25 percent a year earlier.
The Bank of England announced this week that it will no longer require lenders to perform so-called affordability stress tests.
This is where lenders need to calculate whether borrowers can still pay their monthly payments if interest rates rise 3 percent above their lender’s standard variable rate (SVR).
The test was introduced after the financial crisis to help protect borrowers against the risk of defaulting on their home loans.
However, it is considered unlikely to have a major impact on most mortgages and other borrowing restrictions remain, with lenders having to ensure that no more than 15 percent of borrowers receive more than 4.5 times their salary.
Mortgage restrictions mean most borrowers are still unable to borrow more than 4.5 times their salary
Tomer Aboody, of real estate lender MT Finance, said: ‘While we are seeing a slight slowdown in growth and transaction levels, buyers are still excited and are pushing to buy, albeit at a more realistic market level.
“With higher mortgage costs, there are fewer buyers, meaning sales are generally settled around asking prices rather than multiple offers above, as we have seen.”
A slowdown is imminent due to inflation and higher interest rates, but it will likely be very gradual
‘There will be a slowdown due to inflation and higher interest rates, but it will probably be very gradual.’
Nationwide said annual house price growth was in double-digit numbers for the ninth straight month.
However, the monthly rate has slowed down slightly, meaning the average price of a home in the UK has fallen marginally from £271,613 in June to £271,209 in July.
Robert Gardner, Nationwide’s chief economist, said: “The housing market has maintained a surprising degree of dynamism given the mounting pressure on household budgets from high inflation, which has already pushed consumer confidence to an all-time low.
While there are tentative signs of a slowdown in activity, with a dip in home purchase mortgage approvals in June, this has yet to feed through into price growth.
“We continue to expect the market to slow as household budget pressures mount in the coming quarters, with inflation reaching double digits by the end of the year. In addition, the Bank of England is widely expected to raise interest rates further, which will also have a cooling effect on the market if this feeds through to mortgage rates.