A renewal of challenges in the mortgage markets puts greater pressure on prices and activity
House prices fell by -0.1% in May, now down -3.4% on an annual basis according to Nationwide. While the rate of falls has been softening in recent months, the recent spike in mortgage rates will continue to put downward pressure on pricing and activity.
New mortgage approvals fell in April, interrupting the general upward trend in activity since December. The number of approvals in April fell to 71% of the 2017-19 average for April, down from 85% in the previous month. It remains to be seen if the recent rate rises in May will have a further impact on the number of new approvals.
The number of completed transactions also fell in April, down to 77% of the 2017-19 average according to HMRC. This reflects the drop in mortgage approvals over the winter, which are now feeding their way into completions figures. We may well see another drop in completions later in the year from the recent drop in mortgage approvals.
Alongside this, there is a steadily widening gap between supply and demand. There had been an increase in surveyors reporting lower demand while the number reporting increased supply remained the same, according to the RICS April survey. Both indicators remain in negative territory however. This imbalance will also act to suppress price growth.
A gradual rise in mortgage rates starting in April has been the driver for a fall in activity, and will put continued downward pressure on prices. Inflation isn’t falling as quickly as anticipated, and the BoE will be under greater pressure to raise the base rate as a result. While lenders had priced in some rises to the base rate, the market reaction to the inflation data released on the 24th of May suggests that tolerance has been exceeded. Rates have therefore reversed their downward trend.
This has also caused lenders to pull some mortgage products in order to reprice them. The number of first time buyer products available at the start of June was 4.4% lower than a week earlier. While this is a sign of caution from lenders, it’s a far cry from the -50% fall in products the week after the mini-budget last September.
Annual house price growth in February was strongest in Bromsgrove in Worcestershire, up 14.9%. Rochdale had the second strongest growth, at 13.7%. Aberdeen was the only place seeing annual price falls, of -2.3%, with Westminster having the lowest growth at 0.1%.