House prices rose by 0.8% in August, according to Nationwide. This is a marginal rise on July’s growth, but annual growth still softened to 10% from 11% last month. With demand continuing to ease, and economic challenges mounting, we expect to see weaker value performance ahead.

While supply remains low, demand has continued to ease. New buyer enquires remained in negative territory in July, according to the latest RICS survey, although this is from historic highs. New instructions to sell homes remained largely flat, with supply still limited.

Transactions remained strong in July, but there are signs of slowing activity ahead. Completed transactions in July were 6% above the 2018/19 average for the month, according to HMRC. While this indicates a strong market, many of these sales were agreed months ago, before the recent rate hikes. Mortgage approvals were 9% below the 2018/19 average for the month, according to the Bank of England. Sales Agreed volumes are up, however: 8% above the 2018/19 average in July, according to TwentyCI. These sales agreed include cash buyers, a subsect of the market that has remained strong, insulated from the rate rises that are weighing down the mortgaged market.

Demand is being tempered by increasing affordability challenges. The average 5yr fixed rate jumped to 3.5% in July, according to the Bank of England, up from 1.6% at the start of the year. While this is still much lower than the average rates of over 6% we saw prior to 2008, higher house values and squeezed living costs will make the market sensitive to any rate changes, as we have already seen with falling mortgage approvals. 

Rates have also been converging for different mortgage products. There is currently little advantage in securing a mortgage with a longer length, or lower LTV, which are typically on lower rates. This will act to support those who are reliant on small deposits and larger loans. 

And rates are going to keep climbing. August saw the Bank of England enact the greatest base rate hike in 27 years, and with inflation continuing to climb, further sizable rate hikes seem inevitable. Energy costs also present a significant headwind for households, with the average household annual energy cost potentially rising to £5,400 by January, according to Cornwall Insights.

Annual value growth to May was strongest in Blaenau Gwent, up 22.3%, and weakest in Aberdeen, down 2.5%.