Has the property slowdown already started? Estate agents see the signs

A slowdown in the property market has already started despite house price data showing values continuing to rise, some housing experts have suggested.

The warnings that a ‘gradual slowdown’ has already kicked in contrast with the latest round of figures about the growth of the property market, which show another annual double-digit rise.

Nationwide Building Society said house prices grew by 11 per cent in the year to July, up from 10.7 annual growth in June.

But estate agents say that these backward-looking figures don’t reflect the reality in the current property market, where interest rate rises that have led to a jump in mortgage costs and the inflation pain being felt by households, are already taking effect. 

Some property experts highlighted the mismatch between the house price report figures and what is happening on the shop floor.

North London estate agent Jeremy Leaf said: ‘The only surprise in these figures is why it is taking so long for the slowdown we have noticed in our offices over the past few months to be reflected in the numbers.

‘But don’t get me wrong – we are seeing a reduction in growth, not a major correction as prices continue to be supported by lack of choice and a strong labour market.

‘However, still-rising interest rates and cost-of-living pressures are likely to have an increasing impact in the next few months.’

Some estate agents have suggested that the property market has begun to slow

Another estate agent – Savills – also highlighted the gap, explaining that the Nationwide figures represent a different time period to what is happening now.

Lawrence Bowles, of Savills, said: ‘That rising figure is due more to what was going on last year than what’s happening now.’

He explained: ‘This year monthly growth was 0.1 per cent. While that represents stronger growth than the price falls the same time last year, it’s still a continued deceleration from 0.2 per cent growth the previous month and 0.9 per cent the month before.’

However, he went to say that he remained positive due to recent changes to how much buyers can borrow.

He said: ‘Changes to mortgage affordability criteria could mean there’s more capacity for price growth further down the line. We’ve raised our five year price forecast from 12.9 per cent to 17.4 per cent, despite the headwinds currently faced by the UK economy.’

A rapid escalation in mortgage rates has added potentially hundreds of pounds per month to the cost of buying the same property as a year ago.

Financial data provider Moneyfacts said that in July the average two-year fixed rate mortgage was at 3.74 per cent, whereas a year earlier it was 2.25 per cent. 

The Bank of England this week announced that it will no longer require lenders to carry out so-called affordability ‘stress tests’.

This is where lenders are required to calculate whether borrowers can still afford their monthly payments if interest rates rise 3 per cent above their lender’s standard variable rate (SVR).

The test was introduced following the financial crisis to help protect borrowers from the risk of defaulting on their home loans.

However, it is considered unlikely to have a major impact on most mortgages and other borrowing restrictions remain, with lenders having to ensure that across their lending no more than 15 per cent of borrowers take on more than 4.5 times their salary.

Mortgage restrictions mean most borrowers still not able to borrow more than 4.5 times their salary

Tomer Aboody, of property lender MT Finance, said: ‘Although we are seeing a slight slowdown in growth and transaction levels, buyers are still buoyant and pushing through purchases, although at a more realistic market level.

‘With higher mortgage costs, there are fewer buyers meaning sales on the whole are being transacted at around asking prices rather than multiple offers above, as we

‘A slowdown is coming, due to inflation and higher interest rates, but this is likely to be very gradual.’

Nationwide said the growth in annual house prices was in double digits for the ninth month in a row.

However, the monthly rate has slowed slightly, meaning the average price of a home in Britain has dropped marginally from £271,613 in June to £271,209 in July.

Robert Gardner, Nationwide’s chief economist, said: ‘The housing market has retained a surprising degree of momentum given the mounting pressures on household budgets from high inflation, which has already driven consumer confidence to all-time lows.

‘While there are tentative signs of a slowdown in activity, with a dip in the number of mortgage approvals for house purchases in June, this has yet to feed through to price growth.

‘We continue to expect the market to slow as pressure on household budgets intensifies in the coming quarters, with inflation set to reach double digits towards the end of the year. Moreover, the Bank of England is widely expected to raise interest rates further, which will also exert a cooling impact on the market if this feeds through to mortgage rates.