Nationwide’s index has recorded the second monthly fall in house prices with homeowners feeling the pinch due to the economy.
Data from the Nationwide Building Society shows UK house prices lower by -0.4% in April with annual growth at 2.6%, the slowest rate since June 2013.
The average UK home costs £207,699 and for first time buyers the slowdown in house price growth offers more time to save for a deposit to get on the property ladder.
Despite the slowdown Nationwide are expecting a small increase in house prices of around 2% over the course of 2017 as a whole.
Homeowners are feeling the pinch
Robert Gardner Nationwide’s Chief Economist, said the softening of house price growth is surprising as unemployment is at a 40-year low, confidence is high and mortgage rates at an all time low.
Homeowners are feeling the pinch as real incomes are being squeezed and affordability pressures are building in key parts of the country.
Economic data suggests the slowdown in house prices is part of a broader trend as retail sales growth is slowing from a 14-year high of 7.3% in October 2016 to 3.7% February and only 1.7% in March this year.
A combination of moderating wage growth and increasing inflation has reduced the savings ratio, the unspent income each quarter, to 3.3% an all time low since records began in 1963, said Mr Gardner.
House price growth has been outstripping earnings for a considerable time and this gives remortgage buyers the opportunity to release capital for home improvements.
With house prices 6.1 times average earnings, well above the long term average of 4.3 times, first time buyers will struggle to buy and home movers to buy the next larger home.
Mortgage approvals remain steady
Mortgage activity has remained stable despite house prices softening with approvals remaining steady at 68,000 per month, slightly above previous average figures.
This has been helped with the number of people in work being close to an all-time high even though wage growth is level in real terms.
Even though mortgage interest rates are at a low level, data shows the cost of servicing a mortgage is above the long term average especially in London and the South East.
Lower mortgage rates benefit buy-to-let investors as they can remortgage to reduce the cost of interest repayments to lenders increasing mortgage approvals.
Despite low savings ratios, net household wealth remains high with a steady rise in asset prices including property prices, says Mr Gardner.
In particular older homeowners with no mortgage are given the opportunity to access this wealth as equity release buyers to maintain their lifestyle, holidays or home improvements.
What are your next steps?
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