Housing market activity should slow 'modestly' as unemployment and mortgage interest rates are expected to remain low, says Nationwide

What’s the latest?

House prices fell by 0.3% in February, knocking £1,350 off the typical property’s value.

The slide, which followed a surprise 0.8% rise in January, left the average UK home costing £210,402, according to Nationwide Building Society.

The dip pushed the annual rate at which house prices are rising to just 2.2%, compared with 3.2% in the 12 months to the end of January.

“Month-to-month changes can be volatile, but the slowdown is consistent with signs of softening in the household sector in recent months," said Robert Gardner, Nationwide’s chief economist.

Why is this happening?

Richard Sexton, director of e.surv, said that while it was good to see house price inflation rising at a, "more sustainable level, limited supply continues to act as a bottleneck, squeezing potential buyers out of the market".

The drop in prices follows weak activity in the housing market as potential buyers bide their time.

In December, the number of mortgages approved fell to their lowest level for three years, while figures were also subdued for October and November.

The Royal Institute of Chartered Surveyors has also reported that new buyer enquiries have been weak in recent months.

The slowdown is also consistent with recent signs of softening in the household sector, with retail sales relatively weak over the Christmas period and into the new year, while consumer confidence indicators suggests the squeeze on household incomes is continuing to take its toll.

The overall situation suggests consumers are adopting a ‘wait and see’ approach and avoiding making major purchases, such as a house.

Who does it affect?

The cautious mood among consumers is exacerbating the current shortage of properties for sale, as it is deterring existing homeowners from trading up the housing ladder, making it harder for first-time buyers to find a suitable home.

But other data suggests there continues to be significant regional variations, with market activity higher in areas where house price growth has been less strong and affordability is not as stretched.

It is also important not to read too much into just one month’s figures, as there does tend to be volatility on a month-to-month basis.

Nicholas Finn, executive director of Garrington Property Finders, said January's jump in prices, "turned out to be a blip rather than a turning point, and the market is settling back into its pattern of modest growth. But for all the sluggishness of price rises, this is far from a frozen market. Realistically priced homes are finding buyers quickly."

Sounds interesting. Tell me more.

Going forward, Nationwide said the performance of the housing market would be determined by developments in the wider economy and changes to interest rates, as well as any developments relating to Brexit.

It expects subdued economic activity and the ongoing squeeze on household budgets to exert a modest drag on both house price growth and market activity.

But it added that housing activity was likely to slow modestly, due to ongoing high levels of employment and mortgage interest rates that were likely to remain low by historical standards.

At the same time, the lack of homes on the market would act as a support for prices.

Overall it expects property values to remain broadly flat, with a marginal gain of just 1% over the course of 2018.

Top 3 takeaways

• House prices fell by 0.3% in February, knocking £1,350 off the typical property’s value
• The slide, which followed a surprise 0.8% rise in January, left the average UK home costing £210,402
• The dip pushed annual house price inflation down to 2.2%, compared with 3.2% in the 12 months to the end of January