Stretched, But Improving

This morning (Tuesday 2 April) saw Nationwide release its latest report on the UK housing market. 

The headline is that house price growth was “subdued” in March, with prices rising 1.6% compared to March 2023, but a fall of 0.2% from February this year.  The annual rise was the fastest since December 2022.

The blame is being pinned firmly to the mast of affordability, with Nationwide describing this as “stretched, but improving”, which sounds like a comment Paul Hollywood may make to a baker soon to leave the Bake Off tent.

Robert Gardner, the building society's chief economist, told the BBC's Today programme that affordability pressures on buyers were "weighing down" on activity in the housing market and price growth.  For a prospective buyer on an average wage of £35,000 per year looking for a typical home, mortgage payments currently make up nearly 40% of their take home pay, which Mr Gardner confirmed was "well above the 30% long-run average”.

While mortgage rates have fallen from their post Truss/Kwarteng highs, they remain well above the low levels seen in the wake of the pandemic.  Nationwide confirmed mortgage approvals in January were 15% lower than before Covid, reflecting the impact of higher interest rates, which are at a 16-year high.

On a more positive note however, Mr Gardner said income rises were outpacing the house price increases, gradually making houses more affordable. "But it's going to take time to make a big difference," he warned.

The Bank of England held its main interest rate at 5.25% again last month, but announced that rate cuts were "on the way".  It is anticipated in the City the first cut in June or August, with rates to fall to around 4.5% by the end of the year.

Nationwide’s figures should be taken with a large pinch of salt, perhaps thrown over your shoulder in an exuberant Ainsley Harriot style.  In compiling its figures, Nationwide looks at its own mortgage lending and does not include buy to let deals or cash buyers (which alone count for approximately a third of house sales).