6 December 2022 – House prices have fallen for the third month in a row, slowing down the annual house price growth for this year.
According to Nationwide‘s latest House Price Index, house prices have fallen by 1.4% in November, compared to 0.9% in October and 0.1% in September. This is the biggest fall since June 2020 and signals the slowdown of the market.
The average price for a house now stands at £263,788, down from £268,282 in October. Because of this fall, the annual house price growth has fallen to 4.4%, which is a drop from 7.2% in October.
This is a far cry from the annual growth of 14.3% which we have seen in Mach this year.
Affordability Biggest Obstacle
Nationwide puts the falling house prices down to affordability becoming more difficult for many people.
Not only is the housing market still dealing with the fallout from the ill-fated mini-budget, which spooked investors and caused mortgage rates to rise quickly. But rising inflation and increased energy costs also put a strain on household budgets.
Although the markets have since stabilised, after the new Chancellor has reversed most measures announced in the mini-budget, mortgage rates are still at a higher level.
With inflation predicted to stay high for some time, the Bank of England is likely to rise interest rates further to bring it under control.
The market looks set to remain subdued in the coming quarters. Inflation is set to remain high for some time and Bank Rate is likely to rise further as the Bank of England seeks to ensure demand in the economy slows to relieve domestic price pressures.Robert Gardner, Chief Economist at Nationwide
In its House Price Index, Nationwide used regional income data to calculate on what income a potential first-time buyer would be to buy a property in the current market, with a 20% deposit and borrowing four times their income.
Depending on where in the income range the buyer sits, the affordability rises or decreases.
Their calculations show that houses are more affordable in the North of England and Scotland, where the hypothetical buyer lies in the 30th income percentile.
The further south the buyer is, the less affordable properties become. In the North West, Yorkshire and Humber and Northern Ireland, the buyer would be in the 50th income percentile.
In Wales, buyers would be in the 60th income percentile, in East Anglia and the Midlands in the 70th, in the South West in the 80th and in London and the South East in the 90th income percentile.
Affordability Has Decreased In All UK Regions Apart From London
Compared to 2019, all regions have seen a decline in affordability, except London, where it was already at a low level.
The biggest deterioration in affordability was in Wales, where a typical buyer was in the 40th income percentile in 2019 and is now in the 60th.
Scotland and the North of England saw the smallest decline, with the typical buyer in the 25th income percentile in 2019, which moved up to the 30th in 2022.
All other regions moved up by 10 points in the income range of a typical buyer.
House Prices Predicted To Drop By 20%
Meanwhile, the founder of property platform Rightmove has warned that house prices will drop by 20%.
The economic climate and the fear of a deep recession have prompted the industry expert to give such a bleak prediction.
My view on the housing market is that it’s going down in every direction. Transactions are going to go down. Prices are going to go down. The only question is by how much? Intuitively it feels like double figures on both, starting now.Harry Hill, Founder of Rightmove
This forecast is more pessimistic than others, who have predicted house prices to fall by between 5% and 12% in the next twelve months to two years.
Mr Hill did also point out that even if his prediction came true, it would not mean that homeowners would fall into negative equity. The housing market has performed astonishingly well in the past two years, with house prices rising by 20%.
This means that most properties would not lose so much value that they would be worth less than the original purchase price.
And it should also be remembered that these predictions are dependent on many factors. Mr Hill expects such a steep decline if the UK hits a deep recession.
Although homeowners won’t like to hear of such big price drops, it will be music to first-time buyer’s ears, many of whom have been priced out of the housing market.
If the house price growth does become negative and house prices do fall, it might be possible for them to get on the housing ladder after all.