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Nationwide: house price growth at -3.5% amidst “toxic” backdrop

House prices fell by 3.5% in the year to June, a situation that one commenter remarked as a “toxic cocktail” thanks to the escalating mortgage rates, Nationwide’s house price index has found.

For those coming off a two-year fix, a typical mortgage will cost £385 a month more, and for those coming off a five-year fix, it’ll cost £315 more.

Property prices rose by 0.1% between May and June – but it’s thought the market is likely to decline after that.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “A toxic cocktail of ruinous property prices and devastating mortgage rates could kill off any lingering optimism over house prices. The market held it together in June, but this was before mortgage rate hikes took their toll.

“At the end of May, the average 2-year fix was 5.38% and the average five-year deal was 5.05%, according to Moneyfacts. In June, house-hunters with this kind of mortgage in their back pocket were treated to a bumper array of homes for sale and sellers who were desperate to do a deal. It’s these buyers who were prepared to pay house prices up 0.1% from a month earlier.

“By the end of June, things look very different. With the average two-year fix at 6.37% and the average five-year deal at 5.94%, it puts an enormous dent in affordability, and may well drive a huge number of buyers out of the market.”

Last week the government unveiled mortgage forbearance rules, allowing people to switch onto an interest-only mortgage for six months.

However for people whose affordability is consistently stretched, selling their property is another option.

Tom Bill, head of UK residential research at Knight Frank, said: “While we are still playing the guessing game of how much higher the Bank of England will push rates, sentiment in the housing market will remain weak.

“Buyers find it difficult to plan as budgets get recalculated and there is uncertainty over what happens next to property values, which means sensitivity around asking prices has become acute. Prices will come under growing pressure given how much higher mortgage costs are compared to 18 months ago and we expect a 10% decline, spread over this year and 2024.

“When stability returns, we think demand will prove more resilient than expected given the cushioning effect of strong wage growth, record levels of housing equity, amassed lockdown savings, the availability of longer mortgage terms, forbearance from lenders and the popularity of fixed-rate deals in recent years.”

Iain McKenzie, chief executive of The Guild of Property Professionals, said: “Interestingly, Northern Ireland is outperforming any other region of the UK on house prices, showing not only resilience but also continuing annual growth.

“This confidence is reflected in what we are seeing on the ground, with the majority of potential buyers hoping to get on the property ladder in the next few months. Despite worries regarding mortgage rates, only 7% of people we surveyed are worried that this may affect their ability to secure one.

“Affordability is a big hurdle right now, and people may be hesitant to sign up to a mortgage without the certainty that they can afford the repayments, especially after the fixed period ends.

“As inflation crawls down, interest rates will hopefully come down too, which will provide respite for those on a variable rate mortgage that have seen their monthly repayments rocket recently.”