At a time when almost everything seems to be going up in price, something that’s not is UK property. Following a few years of surprisingly rapid rises, the (what some analysts call) ‘over-inflated market’ is now encountering significant headwinds and is currently at its weakest since November 2012.

Most countries in the west are battling with a high cost of living. Although the current UK inflation rate is said to be 10.1 per cent, many financial experts feel that selective use of data, what some would call “smoke and mirrors”, is being implemented, and the true inflation rate is far higher than the headline figure.

For most people, it seems that just about everything has risen in price compared to a year ago, but one thing that has avoided that trend is UK house prices.

This has been confirmed by the latest Nationwide House Price Index, which reached our desks this morning. Data shows that house prices were down 1.1% year-on-year in February, which signifies the first annual decline since June 2020 and the weakest since November 2012.

Two of the most important indicators of the health of the UK property market come from the Halifax and Nationwide, and as the Nationwide report has just been released, we’ll be focusing on their data for this feature.

Robert Gardner, Nationwide’s Chief Economist, said, “Annual house price growth slipped into negative territory for the first time since June 2020, with prices down 1.1% in February compared with the same month last year. Moreover, February saw a further monthly price fall (-0.5%) – the sixth in a row – which leaves prices 3.7% below their August peak (after taking account of seasonal effects).”

Something that Robert went on to highlight in his statement was the word confidence, and this is sorely lacking given the bleak outlook for the UK economy, inflation, the high cost of living, mortgage rates, and an expected weakening in the labour market.

The return of Gazundering
Sadly, a word we hoped we had seen the back of has returned. Research conducted by Property purchasing specialists, House Buyer Bureau, revealed that just under one-third of home sellers (31%) had experienced gazundering by their buyers.

If you’re not familiar with what gazundering is, it occurs once a buyer has put in an offer which has been accepted, and once the sale has progressed to a certain point, the buyer will try to renegotiate the price, usually with a lowball offer, according to the House Buyer Bureau research, around a third of sellers experienced this within a week of exchange.

Chris Hodgkinson, the company’s MD, said that although much of the gazundering was borne from opportunistic buyers, in some cases, issues arising from a survey, which had resulted in a down valuation, was also a reason for a renegotiation. On the performance of the market, he stated that the record rates of house price growth generated by the pandemic were subsiding, and the market had dropped down a couple of gears in recent months.

Latest research from Moverly
In the latest research by digital upfront property pack provider, Moverly, Homebuyers who are completing on a property purchase in some areas of the UK market today will have already seen the value of their property fall by as much as £195,000 before they’ve even been handed the keys.

In no less than 36 areas across the UK market, buyers are finding that they are already out of pocket on their purchase by the time they complete, with house prices falling since they originally agreed to the offer.

Mortgage approval data
In addition to this, the latest mortgage data from the Bank of England show that approvals had fallen between December and January to 39,637, way short of the 73,789 seen in January of the previous year.

UK housebuilder margins under pressure
Persimmon, one of the UK’s largest housebuilding companies, has also released its final results to 31 December 2022, and they show that the company’s margins are now coming under pressure.

On this, Charlie Huggins, Head of Equities at Wealth Club, commented, “New home buyers are clearly exercising greater caution, and frankly, who can blame them? Mortgage payments for first-time buyers have significantly increased over the past year. When combined with the limited availability of high loan-to-value mortgages and the end of the Help to Buy scheme in England, it’s no surprise that the housing market has seen a marked slowdown.

Persimmon has earned juicy profit margins on the back of housing market strength over recent years. But this year, it is facing significant margin pressures. Cost inflation still remains a problem, while the group warns that the number of home completions could fall to around 8,500 this year, down from c. 15,000 in 2022. Add this to extra sales and marketing costs needed to shift homes in a weaker environment, and the group’s margins could easily halve this year, depending on how the rest of the year plays out.”

There is a huge number of factors that could affect the direction of UK property prices over the coming months, such as another hike in the rate of inflation or further interest rate increases, and something a little less likely but every bit as damaging such as an economic war, leading to a weakened US economy which could impact other western nations.

How long the current headwinds facing the UK property market will last is anyone’s guess. If I was asked to make a prediction, I think that it would be choppy waters for the remainder of 2023.

However, not everyone shares my thoughts, including Robert Gardner of Nationwide, who feels that conditions should gradually improve ‘if’ inflation moderates in the coming months as expected, which would ease pressure on household budgets.

He also feels that solid gains in nominal incomes, together with weak or declining house prices, will also support housing affordability, especially if mortgage rates edge lower in the coming months.

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