Why have house prices run out of steam this summer?
The average price of a UK home dipped in August for the fourth time in six months, in a sign that the property market is under real pressure.
The average price of a house in the UK fell to £271,079, down 0.1 per cent from the month before – a surprise to market watchers, who had expected 0.2 per cent growth.
Robert Gardner, Nationwide’s chief economist, said affordability issues were behind the decline.
“House prices are still high compared to household incomes, making raising a deposit challenging for prospective buyers, especially given the intense cost of living pressures in recent years,” he said.
Mortgage payments have also steeply risen: On average, a first-time buyer now spends 44 per cent of their salary in mortgage payments, up from the long-run average of 35 per cent.
Other reasons for this summer’s weak house price growth include a post-stamp duty relief lull, with buyers racing to lock in purchases before first-time buyer relief on the tax ended in March.
There’s also a glut of homes on the market now, with the number of homes for sale 16-19 per cent higher than a year ago, according to Rightmove.
“Average house prices are being kept in check by an increase in stock, which is likely to be even more the case as properties launch onto the market this autumn,” Jason Tebb, President of OnTheMarket, said.
“Depending on what they are buying and where, generally speaking buyers are finding themselves in a strong position and are using that to negotiate on price.”
Jonathan Hopper, CEO of Garrington Property Finders, added that “sellers are being forced to price their homes keenly just to get potential buyers through the door”.
One in ten UK sellers cut their asking prices to attract buyers in July amid steep competition.
House prices unlikely to grow this year
Zoopla expects UK house price inflation to continue in a range of 1.5-2 per cent over the rest of the year, with signs that prices are firming in southern England but slowing across northern regions.
“With so much property still overhanging the market, many buyers are seizing the opportunity of negotiating hard whereas worried sellers often have no option but to agree revised terms in order for the transaction to proceed.
“Looking forward, we don’t see much change and certainly not much chance of a strong rebound in prices, given concerns about autumn tax rises, particularly for the property market,” Jeremy Leaf, north London estate agent and a former RICS residential chairman, said.
Rumours have been swirling in Westminster about a variety of property tax changes Rachel Reeves might introduce in this autumn’s – or further down the line – in an attempt to plug a £40bn gap in the nation’s finances while overhauling a complex system of levies and charges.
The Treasury is reportedly looking into a range of options, including a national property tax on the sale of homes, a local annual property tax based on property values, and an introduction of capital gains tax on the sale of homes over £1.5m.
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said: “Looking ahead, uncertainty around future tax policy combined with a growing stock of homes on the market may continue to temper price growth.”
One upside of a period of low growth, however, is that affordability will improve for struggling potential first-time buyers, particularly if wages continue to outpace house price growth.