Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest. 

UK HOUSE PRICES remain in a mini swoon as we approach the key, post-holidays selling season. Average new seller asking prices fell by 0.4% in the year to August, according to Rightmove. That’s the largest fall registered by the UK’s largest property website since March 20191

However, even this belies considerable over-optimism among sellers. Nationwide says prices fell by 5.3% over the year based on its lending data for owner-occupier houses2. Sellers are still holding out for more. 

Looking ahead, there are a few positives. Mortgage repayments are underpinned by a variety of factors, including low unemployment and previous affordability testing. Both lessen the likelihood of a surge in defaults leading to a deeper market decline. 

Lenders are beginning to launch cheaper deals too. Five-year fixed rate mortgages can now be secured at 5.67%, compared with a peak 6.11% in July3.  

This looks like a pre-emptive move, given that the Bank of England is widely expected to lower its Bank Rate at some point next year after inflation has tailed off.  

It’s also likely a result of intense competition in the mortgages market. It’s easier than ever to track who the cheapest lenders are via an online comparison site.

Perhaps the biggest problem in the near term is the lagged effects of previous increases in mortgage rates.   

Those lagged effects include cumulative pressures on household finances and the knowledge that future fixed rate mortgages will cost considerably more than at any time during the past decade. Even after the Bank Rate starts to fall, interest rates will still be at elevated levels compared with recent history. 

Moreover, there’s still considerable uncertainty over when the Bank Rate will move into reverse. A surprise decision by the Bank of England not to raise interest rates in September suggests we may be nearly there, but we can’t be sure of it. It’s highly likely that investors driving frothier parts of the market will sit on their hands until there is greater clarity. 

Industry forecasters anticipate a further modest fall in house prices in 2024. Capital Economics, for instance, said last month it expects a 10.5% peak-to-trough fall in prices of which 4.5% has already happened4

This is broadly in-line with the Office for Budget Responsibility’s March forecast for a 10% drop from the high point in the final quarter of 20225

Arguably, the backstop for property prices is capital affordability and, in this respect, the market has something on its side. Since the pandemic, wages have been growing reasonably well, at least, in nominal terms. With house prices now falling, multiples of earnings are following suit. 

Houses have become progressively less affordable since 1997, peaking at nine times earnings for England in 2021. However, affordability improved last year, to around 8.3 times6.  

House price falls so far in 2023 coupled with a nominal increase in wages of just shy of 8% in the year to July mean that ratio is now set to decline again. That will be especially welcome news for first-time buyers, traditionally the main pillar upon which the market is built. 

Source: 

1 Rightmove, 18.09.23 

2 Nationwide, 01.09.23 

3 Rightmove, 18.09.23 

4 Capital Economics, 04.08.23 

5 OBR, 15.03.23

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

Share this article

Latest articles

The UK’s best-kept secret

The importance of re-investing dividends


Tom Stevenson

Tom Stevenson

Fidelity International


Andrew Oxlade

Andrew Oxlade

Fidelity International

What does a £1m pension pot buy?

How to make your pension savings last


Becks Nunn

Becks Nunn

Fidelity International