Nationwide's latest analysis has revealed that continuing cost of living pressures are holding first-time buyers back.
UK house prices fell 0.4% month on month in April, with annual house price growth slowing to 0.6% - down from 1.6% in March. According to Nationwide, the price of a typical home in the UK now stands at £261,962 (not seasonally adjusted). Despite the dip, prices are just 4% below the peak seen during the summer of 2022.
Robert Gardner, Nationwide's Chief Economist, said: “UK house prices fell by 0.4% in April, after taking account of seasonal effects. This resulted in a slowing in the annual rate of house price growth to 0.6% in April, from 1.6% the previous month.
“The slowdown likely reflects ongoing affordability pressures, with longer-term interest rates rising in recent months, reversing the steep fall seen around the turn of the year. House prices are now around 4% below the all-time highs recorded in the summer of 2022, after taking account of seasonal effects.
Higher rates holding back potential first-time buyers
“Recent research carried out by Censuswide on behalf of Nationwide found that nearly half (49%) of prospective first-time buyers (those looking to buy in the next five years) have delayed their plans over the past year.
“Among this group, the most commonly cited reason for delaying their purchase is that house prices are too high (53%), but it is also notable that 41% said that higher mortgage costs were preventing them from buying.
Why are people delaying house purchases?
“Coupled with this, 84% of prospective first-time buyers said that the cost of living has affected their plans to buy, for example through having less money each month to save for a deposit. Around two-thirds (67%) of respondents currently have between £0 and £10,000 saved towards a deposit.
"With a 10% deposit on a typical first-time buyer property currently around £22,000, it is not surprising to find that c.60% of prospective buyers have yet to save more than a quarter of their target deposit.
“Interestingly, 55% of respondents said they would be willing to buy in another part of the country where house prices are cheaper, or where they could buy a bigger property. Inevitably, there is a lot of variation in how far people would be willing to move, but half said they would move more than 30 miles from their current location.
“Buying a property in a less expensive area appears to be the most common compromise that prospective buyers will make. Around a third (32%) said they would consider a smaller property than they wanted, while 28% would go for a property that needed work.
Compromises to buy a first home
“Amongst recent first-time buyers (those who have bought their first home in the last five years), 38% said they ended up compromising on the property they purchased. Among this group, nearly 40% bought a property to do up (rather than ‘turn-key’ ready) while 34% bought in a different area.”
Tom Bill, head of UK residential research at Knight Frank commented: “The house price growth seen in the first two months of this year is going into reverse as higher mortgage rates take their toll on demand. Borrowing costs have risen as a strong labour market means the prospect of a rate cut has become more remote.
"There are added financial pressures in the system as a wave of owners roll off sub-2% mortgages agreed in early 2022. We believe demand and house price growth will pick up later this year as a rate cut moves onto the horizon.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: “We are not surprised by the small drop in property prices. The increase in listings is resulting in more choices for buyers and some heavy negotiations on the ground which means only realistic sellers are proving successful.
“However, underlying demand is much more resilient than it was a few months ago, coinciding with the stronger spring market. There is confidence that affordability will improve now that inflation seems to be more under control and despite recent relatively small increases in mortgage payments."
Amy Reynolds, head of sales at Richmond estate agency Antony Roberts, says: “Spring has finally sprung with clear evidence that the housing market has kicked into gear. Our offices are the busiest they have been all year, particularly with family homes coming to market, as they look better at this time of year and a significant uplift in viewings.
“Well-finished properties are capturing buyers’ attention, due to the uncertain costs when it comes to refurbishment work and the challenges in finding the right builder.
“Creeping mortgage rates are not helping the market and are holding back the lower end. The Bank of Mum and Dad remains essential for the majority of first-time buyers in London and the southeast where property prices are higher."
Matt Thompson, head of sales at Chestertons, says: “The uplift in market activity typically associated with spring was slightly delayed this year but became more evident over the course of April. Compared to March, we saw an increase in the number of London house hunters which also led to sellers feeling more confident about putting their property up for sale.
"Still, demand continued to outweigh supply in April which gave the majority of sellers the upper hand during price negotiations.”