London house prices up 1.6% but first-time buyers struggle to afford high mortgage rates
Housing market
The average London house price is currently £525,248, reports Nationwide, up 1.6 per cent since this time last year.
Across the UK, house prices rose by just 0.2 per cent month-on-month in June, as high mortgage rates continued to hold back buyer activity, Nationwide reports.
The modest monthly growth leaves the average price of a house in the UK at £266,064, the index by Nationwide Building Society showed, up 1.5 per cent on the same time last year.
Prices rose at a slower rate than in May, when they increased by 0.4 per cent month on month, indicating a slight flattening in growth as the housing market remained subdued.
Wages outpaced by mortgage rates
“While earnings growth has been much stronger than house price growth in recent years, this hasn’t been enough to offset the impact of higher mortgage rates,” said Robert Gardner, Nationwide’s chief economist.
A first-time buyer with a 25 per cent deposit could get a 1.3 per cent interest rate on a five year fixed-rate mortgage in 2021. Now that interest rate is closer to 4.7 per cent.
Homeowners can expect to pay £400 more a month on their mortgage than they would have five years ago, leaving many Londoners gambling on delaying fixing a mortgage until rates potentially come back down.
“Housing affordability is still stretched,” added Gardner. “Today, a borrower earning the average UK income buying a typical first-time buyer property with a 20 per cent deposit would have a monthly mortgage payment equivalent to 37 per cent of take-home pay — well above the long-run average of 30 per cent.”
The total number of transactions is down by about 15 per cent compared with 2019, when prices were at a record high, Nationwide said.
Transactions involving a mortgage are down even more, by nearly a quarter, reflecting the impact of higher borrowing costs, Mr Gardner added, while cash deals are about 5 per cent above pre-pandemic levels.
Buyers wait for base rate fall
Mortgage rates have remained stubbornly high after the Bank of England held the base interest rate at 5.25 per cent for longer than expected during the second quarter.
Earlier this year, economists had expected the Bank to cut rates as soon as May or June, but policymakers voted to hold them amid signs that some inflation indicators had still not fallen as fast as anticipated.
Nationwide’s index also included data for the UK’s nations and regions, showing annual changes during the three months to June.
The figures showed that, within England, house prices rose fastest in the North and the Midlands, which saw combined growth of 2.4 per cent year on year.
Southern England saw a 0.3 per cent fall. London was the best-performing southern region. East Anglia was the weakest-performing region, with prices down 1.8 per cent year on year.
Mr Gardner described it as “a mixed picture, with some regions seeing a modest pick-up in growth, but others still recording annual price declines”.
Northern Ireland remained the best-performing area in the UK, with prices up 4.1% compared with the same period in 2023.
Estate agent Jeremy Leaf, former residential chairman of the Royal Institute of Chartered Surveyors, said: “Early spring optimism all but disappeared when it became apparent that any reduction in mortgage rates would be delayed.
“This reliable indicator of housing market health also shows how the election announcement had little impact on prices or activity and underlines how cash purchases are playing a more important role.
“Now that inflation has started to fall, expectations are growing that the drop in base rate may not be delayed too long after all.”
Amy Reynolds, head of sales at estate agency Antony Roberts, said: “The situation is very concerning for first-time buyers.
“House prices may have come off a little from their post-pandemic highs but this is more of a correction than a fall and home-ownership is still out of reach for many, with high borrowing costs not helping the situation.
“One trend we are seeing is people looking to financially downsize to release capital to live on and pay bills, which is hugely concerning.
“The property market tends to pick up after an election. If this election is followed by an interest rate cut in August, this would set the housing market up nicely for the autumn, dispelling uncertainty and boosting affordability.”
Here are average house prices and the annual house price change, according to Nationwide (the annual change figures compare the three months to June with a year earlier):
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