The latest house price index, just unleashed over the weekend, is causing alarm bells to ring, as a leading analyst predicts a hefty market drop on the horizon come autumn.
According to Nationwide, average house prices took a slight dip in May, sliding 0.1 percent last month, following an unforeseen upturn of 0.4 percent in April. Compared to May of the previous year, the average house price has tumbled by a staggering 3.4 percent.
As interest rates face the possibility of another hike, the Nationwide warns that further declines could be in store. Now, echoing these sentiments, Sarah Coles, the head of personal finance at Hargreaves Lansdown, a prominent business consultancy, adds her voice to the growing chorus of caution.
“Although May witnessed a minor setback in house prices, it’s merely a drop in the vast sea of dreadful news that may lie ahead if mortgage rates continue their upward trajectory. The change observed in May can be mostly attributed to seasonal adjustments, as prices remained relatively flat. What really matters is what comes next,” asserts Coles.
“This spring, confidence was slowly budding in the property market, as buyers and sellers naively believed that the nightmare of inflation might finally abate and mortgage rates could continue their descent. However, with higher core inflation figures emerging, the expectation of rising interest rates prompted the withdrawal of hundreds of mortgage products from the market and major lenders to hike rates. This development may have shattered confidence.”
Coles adds a cautious note, “Thankfully, this won’t be a repetition of the horrors witnessed after the mini-budget. The market hasn’t been rattled to the same extent. There’s also a chance it may have overreacted, with rate expectations potentially receding. Nevertheless, we can anticipate mortgage rates trending upwards in the immediate future.”
“While the impact won’t be immediate since people still have mortgages in their back pockets, we should brace ourselves for dwindling demand, reduced sales, and softer prices,” warns Coles.
Despite the gloom, Coles points out a few flickers of hope. Bank of England data indicates that mortgage approvals rebounded in both February and March, indicating an increased number of prospective buyers equipped with mortgage agreements. However, let’s put this in perspective, as approvals still remain 20 percent below pre-pandemic levels. Furthermore, employment figures continue to demonstrate resilience, with a solid 3.9 percent unemployment rate in March.
Summing up, Coles advises, “If you’re currently on the lookout for a home, it’s definitely worth pushing for an attractive deal to create a safety net in case prices plummet further in the coming months.”