Nationwide has issued a warning that a considerable rise in mortgage costs could cause a “significant slowdown” in the housing market as increasing rates put pressure on borrowers.
According to their data, house prices in June experienced a 3.5% drop annually, yet saw a marginal monthly increase of 0.1%.
The institution pointed out that an average first-time buyer, making a 20% deposit on a typical property, would be allocating a significantly larger portion of their income towards their mortgage compared to the long-term average.
Robert Gardner, the chief economist at Nationwide, stated, “The steep rise in borrowing costs will likely create substantial dampening of housing market activity in the short term.”
He went on to say, “Property prices remain elevated when compared to earnings, and consequently, deposit prerequisites still pose a significant obstacle for potential market entrants.
He noted that a 10% deposit on a typical first-time buyer property is equivalent to around 55% of gross annual income. Though this is lower than the peak of 59% seen in late 2022, it is still slightly higher than levels prior to the 2007/8 financial crisis.
This news follows recent moves by lenders to further increase their two and five-year fixed mortgage rates following the Bank of England’s decision to raise the base rate last week.
Mr. Gardner concluded, “Despite the increased interest rates for savers, the steep rise in rents, along with persistently high inflation, continues to pose challenges for many potential buyers trying to save for a deposit.”
