House prices fell 3.1% year-on-year in March according to Nationwide’s latest house price index reading. This is the largest annual decline since July 2009, reinforcing concerns the market is facing a significant slowdown in 2023.
The downturn in the housing market began late last year due to the financial market turbulence caused by the mini-Budget.
Faced with higher mortgage rates as well as the increased cost of living, buyers have since continued to question whether it’s a good time to buy a house.
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“It will be hard for the market to regain much momentum in the near term since consumer confidence remains weak and household budgets remain under pressure from high inflation,” says Robert Gardner, chief economist at Nationwide. “Housing affordability also remains stretched, where mortgage rates remain well above the lows prevailing at this point last year.”
How did house prices change regionally?
Annual house price growth slowed in all regions, but Scotland remained the weakest-performing region with prices down 3.1% compared to a year ago.
East Anglia was the weakest-performing region in England, with prices falling 1.8% year-on-year.
The strongest performing region was the West Midlands, where prices were up 1.4% compared to a year ago.
Prices were generally flat across northern England, but southern England saw a 1.1% decline.
Will house prices continue to fall?
The Office for Budget Responsibility expects house prices will fall 10% by 2024 due to low consumer confidence, the squeeze on real incomes and high mortgage rates.
The Bank of England (BoE) has hiked its key interest rate to 4.25% and the effective interest rate, or the actual rate paid on new mortgages, rose to 4.24% in February compared to 1.59% in the same month a year ago according to BoE data.
But how much homeowners pay will depend on the type of mortgage they have.
The 1.4 million homeowners with fixed-rate products expiring this year will “face the full force of the mortgage shock” but those locked into five or ten-year products can “rest easy for now”, says Alice Haine, personal finance analyst at investment platform Bestinvest.
“Meanwhile, those on variable products, which include trackers linked to the BoE’s base rate or discounted variable rates tied to a lender’s standard variable rate, will be hit with instant repayment hikes when the BoE increases the base rate,” adds Haine.
But buyers have been turning to tracker products as they “take a punt on interest rates eventually falling, plus they can offer borrowers flexibility if they want to overpay or snap up a new deal down the line when the market improves”.
There is some good news: some lenders have been slashing their mortgage rates recently despite the latest interest hike.
“This is because swap rates, the rate banks borrow money at based on future bank rate expectations, have been edging down of late as lenders have already priced in the latest interest rate rise,” says Haine. “The result is a slightly more competitive mortgage market with expectations of more rate cuts to come.
But it’s unlikely the property market will return to the euphoric state it experienced in 2020 and 2021. This boom was fuelled by ultra-low borrowing rates, stamp duty cuts and the “race for space” throughout lockdowns.
So far the Spring season, which tends to be a good one for house prices due to increased demand, is not looking to be a “robust one”, says Myron Jobson, senior personal finance analyst at interactive investor.
The low inventory of homes could keep prices elevated for longer, but “the housing market remains a frustrating one for would-be buyers, fraught with uncertainty and unpredictability,” Jobson says.
“The affordability crunch could mean that existing homeowners may wait to list their properties, since many have already locked in lower mortgage rates, creating little incentive to sell and buy again until rates are more attractive.”
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