Image source, Getty Images
- Author, Nick Edser
- Role, Business reporter, BBC News
High mortgage rates mean affordability is still “stretched” for many homebuyers, Nationwide said.
The building society said that while profits had risen faster than house prices in recent years, this had not been enough to offset the impact of more expensive mortgages.
The commission made the announcement after it said house prices had risen “broadly stable” in June, up 0.2% on the previous month.
According to the lender, the average house price now stands at £266,064.
Prices rose 1.5% year-on-year, but Nationwide said housing market activity was “broadly flat” over the past 12 months, with transactions down about 15% compared to 2019.
The lender said the market continues to be affected by the rise in mortgage rates, which started to rise after the Bank of England started raising its key interest rate in late 2021.
Robert Gardner, Nationwide’s chief economist, said mortgage rates “remain well above the record lows of 2021 that were driven by the pandemic.”
“For example, the interest rate on a five-year fixed-rate mortgage for a borrower with a 25% down payment was 1.3% at the end of 2021, but in recent months it has been closer to 4.7%.
“That is why housing affordability is still limited.”
Nationwide’s figures are based on the building society’s own mortgage lending, which excludes buyers buying homes with cash or buy-to-let deals. Cash buyers account for about a third of home sales.
According to Nationwide, the effect of higher borrowing costs is reflected in the fact that the number of mortgage transactions has fallen by almost 25% in the past year.
Meanwhile, cash transactions for real estate are about 5% higher than before the pandemic.
Across Britain, Northern Ireland saw the biggest price increases, up 4.1% year-on-year.
Wales and Scotland both saw annual increases of 1.4%. Prices in England rose by 0.6%, with northern regions generally seeing larger increases than those in the south.
According to financial information service Moneyfacts, the average rate for a two-year mortgage deal is 5.95%, while the average for a five-year deal is 5.53%.
The focus now turns to the Bank of England’s Monetary Policy Committee (MPC), which sets interest rates, to see if the committee decides to cut rates at its next meeting on August 1.
“Buyers could get back into their homes if we get a rate cut from the Bank of England,” said Sarah Coles, head of personal finance at Hargreaves Lansdown.
‘This could happen as early as August, although persistent services inflation and higher wages could mean we have to wait until the fall.
“Regardless, we don’t expect huge drops in mortgage rates overnight, so the reaction will be a moderate rebound in sentiment rather than an overwhelming wave of optimism.”
These are homeowners who concluded mortgage agreements before the Bank started raising interest rates in 2021.
These deals are now expiring and the Bank said the majority will be completed before the end of 2026.
For the average household looking for a new deal, monthly mortgage repayments are expected to rise by around £180, or around 28%, the Bank said.
However, for about 400,000 households, monthly payments could increase by 50% or more.
However, the data also shows that the amount borrowed through mortgages fell sharply to £1.2 billion in May, down from £2.2 billion the month before, although it does not include those who took out a new mortgage with the same lender.
Ways to make your mortgage more affordable
- Pay more. If you still have some time on a fixed low interest rate, you may be able to pay more now to save later.
- Switch to an interest-only mortgage. It can keep your monthly payments affordable even if you don’t pay off the debt you incurred when purchasing your home.
- Extend the term of your mortgage. The typical mortgage term is 25 years, but terms of 30 and even 40 years are now available.
How does mortgage interest affect your life?