MNI INTERVIEW: UK House Prices To Keep Rising - Nationwide

Slowing activity across the UK housing market will weigh on the speed of annual price gains in the second half of 2022, but there are probably enough tailwinds to keep growth in positive territory into next year, Nationwide Building Society senior economist Andrew Harvey told MNI.

"The latest Bank of England data showed mortgage approvals slowing and the RICS survey also saw a slowdown in buyer activity, although as of now, that hasn't evidenced in slowing rates of house price increases," Harvey said in an interview after Nationwide reported that annual house price growth picked up to 11% in July.

"However, as inflation creeps higher and consumers feel the pinch into the autumn, there is bound to be a deceleration, its just the pace of decline that is uncertain." (See MNI INSIGHT: Shrunk, Sick Workforce Adds To BOE Pressure)

Factors still underpinning the market include excess savings built up during the pandemic, though this mainly favoured higher-income brackets, he said.

"First time buyer deposits, property renovation, relocation and even ventures into buy-to-let and property investment developments, have all likely been an avenue for some of those excess savings," Harvey said, pointing to buy-to-let as an outlet for investors looking to hedge against higher inflation.

NO MORE HELP TO BUY

The Oct. 31 end for new applications for the government's Help To Buy scheme has also likely led to first-time buyers bringing forward purchases, he said.

While rates for new and refinanced mortgages have risen, they have not added greatly to the woe of consumers struggling with the cost-of-living crisis.

"Compared to both two and five years ago, borrowers refinancing now are seeing higher costs. However, a 5-year fixed rate mortgage is on offer at around 2.9% and with the UK swaps curve pointing to rate cuts perhaps from the middle of 2023, that could be the peak for now," Harvey said. "Certainly there will be some cost increase for those who had fixed-rate agreements at around 1.4% or 1.5% a couple of years back."

Looking at longer-term fixed mortgages, Harvey said the 2- and 5-year durations remain the bedrock of the UK market, with only modest demand for 10-year fixes.

"Five-year fixed certainly seems the sweet spot currently for market demand," Harvey said. However, he did note that there some interest in variable-rate mortgages of up to 35 years amongst first-time buyers facing affordability issues.