Higher rates reduce mortgage approvals
House prices rose by 0.2% in August, according to Nationwide.
This meant annual growth reached 1.6% in August, up from 1.4% (revised down from 1.8%) in July. House price growth remains hampered by high mortgage rates and this is likely to remain the case over the next few months.
Activity levels have fallen and this will feed through into lower numbers of completed transactions over the next few months.
Mortgage approvals in July fell to their lowest level since December 2023 (-16% below the 2017-19 average), according to the Bank of England. And sales agreed (net of fall throughs) were down -6% in August versus the 2017-19 average, according to TwentyCI. Completed transaction numbers were 2% above the 2017-19 average for July, but this reflects the stronger market earlier in the year. Low mortgage approvals and sales agreed will feed through into these numbers over the next few months.
Buyers remain engaged and lower mortgage rates would unlock activity.
The reduction in sales agreed alongside a consistent level of fall-throughs suggests that the market has now adjusted to the current mortgage rate environment. Although buyers are committing to purchases in lower numbers, Zoopla reported that buyer searches were up 7% in August, so when mortgage rates do fall, there is likely to be a degree of pent-up demand in the market. This is unlikely to translate into significant house price growth, however, as the RICS survey continues to report high number of homes available for sale.
Mortgage rates are likely to remain high and volatile for the next few months and continue to act as a brake on the market.
The energy price outlook remains uncertain, as the US-Iran war continues to disrupt supply. This presents an increased risk that inflation will remain high into early 2027, rather than peaking in Q4 as previously expected. The Bank of England is therefore unlikely to reduce the base rate anytime soon, with Oxford Economics forecasting only one cut in 2027.
More localised house price data from May shows that Scotland and the North West had the greatest price growth, particularly East Dunbartonshire (10.9%), East Ayrshire (10.6%) and South Ayrshire (8.6%). The weakest growth was in Kensington and Chelsea (-9.1%), Westminster (-7.8%) and Worthing (-7.0%).