House prices drop as interest rates increase

House prices drop as interest rates increase

House prices have dropped by the biggest yearly decline for 14 years, according to Nationwide.

The data for July was shortly before the Bank of England increased interest rates yet again, taking it from 5% to 5.25%, spelling more uncertainty for mortgage holders.

The BBC has reported the latest from Nationwide, which said affordability was becoming a challenge for house buyers, with mortgages hitting the highest level for 15 years in July.

It said the average price of a home in the UK is £260,828, approximately £13,000 below a peak in August last year.

Despite this, prices remain far too high with first-time buyers still struggling to buy and landlords passing on increasing costs to tenants.

Nationwide chief economist Robert Gardner has said a first-time buyer on an average wage, who had saved a 20% deposit, would see mortgage payments account for 43% of their take-home pay.

That is based on a mortgage rate of 6%. Figures on August 1 showed a typical two-year fixed mortgage rate was 6.85%, according to Moneyfacts, though this was prior to the latest interest rate increase.

For existing mortgage holders, most lenders and the FCA (Financial Conduct Authority) have now signed up to the Government’s voluntary Mortgage Charter.

This means borrowers will not see their home repossessed ‘unless in exceptional circumstances’ in less than a year from their first missed mortgage payment.

People can also ask their lender for help and guidance without it affecting their credit score; customers who are up-to-date with payments can switch to a new fixed rate deal at the end of their existing deal without an affordability check; plus lenders will provide advice in advance of deals coming to an end.

Those approaching the end of a fixed rate deal will have the chance to lock in a deal up to six months ahead. Lenders also agreed customers who are up to date with their repayments could switch to interest-only payments for six months, or extend the mortgage term to reduce monthly payments and have the option to revert to their original term within six months.

With inflation now at 7.9%, though food prices remain high, there is some optimism the rising interest rates are near or at their peak. That’s according to the BBC’s Faisal Islam, whose analysis is they may not increase much more, though ‘rates could plateau above 5% across next year into 2025’.

The picture remains uncertain though. Anyone whose fixed rate mortgage deal is ending is still advised to explore their options as soon as possible. Compare rates with other lenders and be prepared to swap to a new rate if appropriate.

If you are struggling to make payments, it is advisable to speak to your mortgage lender as soon as possible.