Until recently, we have seen house prices continue to rise due to the lasting impact from the COVID-19 pandemic and other external factors.

According to the Office for National Statistics, the average property price as of March 2023 in England is £304,000 and in Wales is £214,000, representing an increase of 4.1% and 4.8%, respectively, over the last 12-month period.

However, recent figures from the Nationwide Building Society, the UK's second-largest mortgage lender, indicate that the housing market is now slowing, and house prices fell in May at the sharpest rate since July 2009 following the effects of the 2008 financial crisis.

This has been reflected in Zoopla's statistics which show that two in five homes currently for sale on the website have had the asking price reduced by at least 5%.

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A Turbulent Mortgage Market

Falling house prices might be welcome news for first-time buyers looking to get on the property ladder or investors looking for a bargain to add to their property portfolio.

However, the current turbulent mortgage market poses challenges for potential buyers needing mortgage finance, and this is likely to lead to house prices continuing to fall.

The Bank of England base rate has continued to increase, having increased from the record low of 0.1% in December 2021 to the current 4.5%.

The base rate is the highest it has been since 2008. Despite seeing a fall in inflation since April, statistics indicate the inflation rates will remain high for longer than expected, and most economists expect the Bank of England will increase its base rate again in an attempt to control inflation.

Financial market analysts predict that the base rate will climb as high as 5.5% by the end of this year.

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Mortgage Lenders

Mortgage lenders do not like economic uncertainty.

In response, we have seen lenders take drastic action.

Big lenders, including HSBC and Santander, have pulled their mortgage products for new customers at short notice before being re-introduced at a higher rate or not at all whilst they reassess their offers.

Financial data firm Moneyfacts said nearly 800 residential and buy-to-let deals had been pulled in the past month.

Moneyfacts figures state that just since the weekend, the total number of mortgage products available has decreased by around 106 to 7,546 across residential and buy-to-let areas.

Moneyfacts also reports that the average mortgage rate for a 5-year fixed rate deal stands at just under 5.2%, while that for a 2-year fix is closer to 5.5%.

Chief economist of Nationwide Building Society, Robert Gardner, has warned that interest rates will remain high for longer than previously expected.

Buyers may feel the need to act quickly in order to secure a decent deal before there is a further reduction in the number of affordable mortgage products available to them.

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Overall, the turbulent mortgage market is making it more expensive for buyers to borrow money.

In turn, it is expected to reduce demand in the housing market as buyers struggle to afford the higher interest rates whilst they are already dealing with the ongoing cost of living crisis which has seen monthly living outgoings increase for most the population.

With fewer buyers being able to afford mortgages, the Office for Budget Responsibility predicts that house prices will fall 9% over the next two years and not rise again in 2025.

Prospective sellers will need to be realistic about the price at which they market their property as it appears the days when properties are flying off the market within hours are no more.

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