House prices fell by 5.3% in the year to August – a bigger-than-expected drop, according to Nationwide.
This means the typical home is now worth £14,600 less than 12 months ago – with an average property price of £259,153.
Nationwide’s chief economist, Robert Gardner, says the softening is “not surprising” – with interest rate hikes by the Bank of England sending mortgage payments higher.
Activity in the housing market is currently running well below pre-pandemic levels – with mortgage approvals about 20% below the 2019 average in recent months.
But Mr Gardner struck an upbeat note after Nationwide’s latest House Price Index was released – and said “a relatively soft landing is still achievable.”
He added: “In particular, unemployment is expected to remain low (below 5%) and the vast majority of existing borrowers should be able to weather the impact of higher borrowing costs, given the high proportion on fixed rates, and where affordability testing should ensure that those needing to refinance can afford the higher payments.”
And while activity may remain subdued in the near term, Mr Gardner believes a mix of income growth and lower house prices could improve affordability if mortgage rates cool.
Andrew Wishart, senior property economist at Capital Economics, believes this “marks the start of a significant further drop in house prices”.
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He believes that, by mid-2024, house prices will be 10.5% below their August 2022 peak – with mortgage rates set to remain between 5.5% and 6% for the next 12 months.
Analysis: For many, house prices can’t fall far enough
The UK housing market has long lost touch with reality – but the recent modest fall in prices, confirmed by the Nationwide house price index figures for August, does follow the logic of economic trends.
After 14 consecutive Bank of England increases pushed the base rate to 5.25% and many mortgages beyond 6%, it would have been a surprise had the housing market not been affected.
While prices have been falling the volume of completions has stalled too, reflecting perhaps that many potential movers are waiting to see where rates will peak before they take the plunge.
For those looking to sell or buy from an existing home the impact will be largely theoretical, with the cost of remortgaging and the swingeing impact of stamp duty far more consequential in decision making.
A drop of more than 5% will be most welcome to first-time buyers, but the benefit will likely be wiped out by the increased cost of the mortgage required to get on the ladder in the first place.
For millions, prices cannot fall far enough to make that first step realistic, the hike in borrowing costs compounding an affordability crisis that has seen the average house price balloon to eight times the average wage in two decades.
According to Nationwide, there was a 25% drop in first-time buyers in the first half of 2023 when compared with 2019.
“A first-time buyer earning the average wage and buying a typical first-time buyer property with a 20% deposit would now see their monthly mortgage payment absorb over 40% of their take-home pay (with a mortgage rate of 6%) – well above the long run average of 29%,” Mr Gardner added.
There has also been a shift in the types of properties being purchased – with a big decline in demand for detached houses as buyers look for smaller, less expensive places.
Additional housing bills are piling more misery on families at a time when the main measure of inflation is easing back from the highs of last winter, when unprecedented energy costs hit Western economies.
The evolving cost of living crisis has squeezed affordability and demand at estate agents – and the Bank wants a wider economic slowdown to help cool the pace of price rises.
Average rates for two and five-year fixed residential mortgages remain above 6%.
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Renters now in the majority in UK
Higher funding costs for lenders are down to expectations the Bank of England still has some way to go in its battle against inflation.
Financial markets currently expect the Bank’s rate to peak just shy of 6% early next year – from its current level of 5.25%.
Nationwide, like other mortgage lenders in the shifting rate environment, revealed on Thursday that it was reducing some fixed and tracker products by up to 0.15 percentage points from today.
Fresh appeals have been made for information on what would have been the 20th birthday of Ellis Cox, who was shot dead in Liverpool last June.
A number of people have been arrested in connection with the murder at Liver Industrial Estate, but no one has been charged yet.
The 19-year-old’s family and police have paid tribute to him and called for those with information to come forward.
He was shot in the back after a confrontation between his friends and another group of up to three males on Sunday 23 June.
His mother Carolyn paid tribute in an appeal to coincide with what would have been his 20th birthday.
“He was so kind… so laid back, so calm, so mature for his age. And he was just funny. Very funny.
“He was my baby… no mum should have to bury a child. He was my life. And I don’t know what to do without him.”
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Meanwhile, his aunt Julie O’Toole said he was “the sort of person I think you’d be hard pressed to find anyone to say anything negative about. He was loyal, fiercely loyal… everything was about his family”.
To pay tribute to Ellis, Liverpool City Council will be lighting up the Cunard Building and Liverpool Town Hall in orange on Saturday.
Detective Chief Inspector Steve McGrath, the senior investigating officer, spoke about the information gathered so far, six months on from Mr Cox’s murder.
“I’m satisfied that the group that he was with was probably the target… and I would say that’s got something in relation to do with localised drug dealing in that area. But Ellis had no involvement in that whatsoever,” he said.
He added that police are looking for “really significant pieces of evidence now”, including “trying to recover the firearm that was used in relation to this, looking to recover the bikes that were used by the offenders”.
Former Manchester United and Scotland footballer Denis Law has died, at the age of 84.
In a statement, his family said: “It is with a heavy heart that we tell you our father Denis Law has sadly passed away. He fought a tough battle, but finally, he is now at peace.
“We would like to thank everyone who contributed to his wellbeing and care, past and much more recently.
“We know how much people supported and loved him and that love was always appreciated and made the difference.”
The Aberdeen-born footballer previously announced in August 2021 that he had been diagnosed with dementia.
A prolific striker, Law scored 237 goals in 404 appearances for Manchester United, for whom he signed for a then-British record transfer fee in 1962.
He is the only man to have two statues dedicated to him at Old Trafford – one on the Stretford End concourse, the other as part of the United Trinity statue overlooking the stadium’s forecourt beside fellow great George Best and Sir Bobby Charlton.
The only Scottish player to have won the Ballon d’Or award, in 1964, he was also part of United’s triumphant campaign in the 1968 European Cup – in which they became the first English club to ever win the competition.
In a statement, the club said: “Everyone at Manchester United is mourning the loss of Denis Law, the King of the Stretford End, who has passed away, aged 84.
“He will always be celebrated as one of the club’s greatest and most beloved players.
“The ultimate goalscorer, his flair, spirit and love for the game made him the hero of a generation. Our deepest condolences go out to Denis’s family and many friends. His memory will live on forever more.”
Wayne Rooney, former United captain and the club’s all-time record goalscorer, described Law as a “legend”.
“Thoughts with all Denis’s family and friends,” he said in an online post.
Another former United captain, Gary Neville, said: “A great footballer and a great man. It’s a privilege and an honour to have spent time in your company. The King of the Stretford End.”
A tribute from the Scotland national team said Law was “a true great”.
“We will not see his likes again,” it said.
Law also played for Huddersfield Town, Manchester City, and Italian club Torino during his club career, and made 55 appearances for Scotland, scoring 30 goals for his country.
Manchester City said in a post on X: “The whole of Manchester, including everyone at City, is mourning with you. Rest in peace, Denis.”
The weakened pound has boosted many of the 100 companies forming the top-flight index.
Why is this happening?
Most are not based in the UK, so a less valuable pound means their sterling-priced shares are cheaper to buy for people using other currencies, typically US dollars.
This makes the shares better value, prompting more to be bought. This greater demand has brought up the prices and the FTSE 100.
The pound has been hovering below $1.22 for much of Friday. It’s steadily fallen from being worth $1.34 in late September.
Also spurring the new record are market expectations for more interest rate cuts in 2025, something which would make borrowing cheaper and likely kickstart spending.
What is the FTSE 100?
The index is made up of many mining and international oil and gas companies, as well as household name UK banks and supermarkets.
Familiar to a UK audience are lenders such as Barclays, Natwest, HSBC and Lloyds and supermarket chains Tesco, Marks & Spencer and Sainsbury’s.
Other well-known names include Rolls-Royce, Unilever, easyJet, BT Group and Next.
If a company’s share price drops significantly it can slip outside of the FTSE 100 and into the larger and more UK-based FTSE 250 index.
The inverse works for the FTSE 250 companies, the 101st to 250th most valuable firms on the London Stock Exchange. If their share price rises significantly they could move into the FTSE 100.
A good close for markets
It’s a good end of the week for markets, entirely reversing the rise in borrowing costs that plagued Chancellor Rachel Reeves for the past ten days.
Fears of long-lasting high borrowing costs drove speculation she would have to cut spending to meet self-imposed fiscal rules to balance the budget and bring down debt by 2030.
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They Treasury tries to calm market nerves late last week
Long-term government borrowing had reached a high not seen since 1998 while the benchmark 10-year cost of government borrowing, as measured by 10-year gilt yields, was at levels last seen around the 2008 financial crisis.
The gilt yield is effectively the interest rate investors demand to lend money to the UK government.
Only the pound has yet to recover the losses incurred during the market turbulence. Without that dropped price, however, the FTSE 100 record may not have happened.
Also acting to reduce sterling value is the chance of more interest rates. Currencies tend to weaken when interest rates are cut.