House prices in the UK are showing signs of stability after figures from Nationwide on Friday showed a modest 0.1 percent rise in June, reversing a 0.1 percent month-on-month decline in May.
Nonetheless, prices were 3.5 percent lower in June this year than they were in the same month last year. May’s annual figure was a drop of 3.4 percent.
Interest rate rises
Nationwide’s chief economist, Robert Gardner, said that the 13 increases in UK interest rates have yet to make serious dents in demand in the housing market, as illustrated by the continuing rise in mortgage approval numbers. However, in the future, the cost of borrowing will have an effect.
“The sharp increase in borrowing costs is likely to exert a significant drag on housing market activity in the near term,” Mr Gardner said.
“For example, for a representative first-time buyer earning the average wage and buying the typical property with a 20 percent deposit, mortgage payments as a share of take-home pay are now well above the long-run average.”
With the Bank of England expected to raise interest rates to 6 percent by the end of the year, a distinct chill is expected to blow through the UK’s housing market by the winter.
“As the markets bet on more rate hikes this year, with interest rates potentially peaking at 6 percent – or even higher – as the Bank of England battles to extinguish the persistent inflation fire, the property market is in for a rough ride,” said Alice Haine, personal finance analyst at Bestinvest.
“Worsening interest-rate expectations have led to big movements in the bond markets, and as bond yields rise so do swap rates, which lenders use to price home loans.”