House buyers and sellers need to tread carefully as market slowdown gathers pace

interactive investor comments on the latest Nationwide House Price Index.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The housing market slowdown has gathered pace, with annual house price growth falling sharply to 4.4% in November from 7.2% in October. Property prices dipped for the third consecutive month and are down by 1.4% month-on-month.

“There are still considerable regional differences. Some areas have seen a more pronounced deterioration in affordability. The biggest deterioration in affordability since 2019 (before the pandemic) has been in Wales. But affordability remains most stretched in the capital and the surrounding South East region has now joined it.

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“The housing market is not immune to the challenging economic climate, which has inflated the affordability burden for buyers. Mortgage approvals plunged in the aftermath of the ill-fated mini-budget, but buyers can take solace in the cost of fixed-rate deals falling back despite the recent increase in the base rate. This is because fixed-rate deals aren’t as sensitive to base rate rises as variable rate loans, but other factors such as money market swap rates and gilt yields play a significant role in the pricing of fixed-rate mortgages.

“Home prices may continue to fall given the tough macroeconomic environment. The golden era of cheap mortgage rates appears to be over as the Bank of England continues to move interest rates higher to combat rampant inflation. Even first-time buyers able to lean on the Bank of Mum and Dad might struggle to afford mortgage repayments. Rising mortgage rates have also left many of those so-called second steppers struggling to trade up to a bigger home. Meanwhile, the ongoing cost-of-living squeeze on finances is scuppering deposit-building efforts.

“Both buyers and sellers will need to tread carefully in the current uncertain period in the housing market. Sellers may have to adjust to the new status quo in the housing market by being flexible on price given the growing challenges posed by the sharp increase in mortgage rates and high inflation. These challenges show no signs of abating in the short term, which could force buyers to adjust their criteria to get on or move up the property ladder.”