The Nationwide says high interest rates are helping to redefine the housing market in terms of transaction volumes and choices of properties to buy.

In its latest monthly house price index the Nationwide says housing market activity remains weak, with just 45,400 mortgages approved for house purchase in August, some 30 per cent below the monthly average prevailing in 2019 before the pandemic struck. 

This relatively subdued picture is not surprising given the more challenging picture for housing affordability. For example, someone earning an average income and purchasing the typical first-time buyer home with a 20 per cent deposit would spend 38 per cent of their take home pay on their monthly mortgage payment – well above the long-run average of 29 per cent.

And the lender says investors have marked down their expectations for the future path of Bank Rate in recent months amid signs that underlying inflation pressures in the UK economy are finally easing, and with labour market conditions softening. This in turn has put downward pressure on longer term interest rates which underpin fixed rate mortgage pricing. If sustained, this will ease some of the pressure on those remortgaging or looking to buy a home.

As Nationwide noted over the summer,there are signs that more buyers are looking towards smaller, less expensive properties, with transaction volumes for flats holding up better than other property types.

This may be because affordability for flats has held up relatively better as they experienced less of a price increase over the pandemic period. Prices for flats have increased by 12 per centsince the start of the pandemic – half the 24 per cent increase recorded for detached properties.

Despite signs of demand for flats holding up a little better more recently, the price underperformance has continued in the most recent quarterly data, with flats seeing the largest year-on-year fall (down 5.7 per cent), compared to drops of 3.6 per cent for detached, 4.6 per cent for semi-detached and 5.3 per cent for terraced properties.

In the mainstream market, house prices remain 5.3 per cent lower than a year ago says the Nationwide.

The South West was the weakest performing region, with prices down 6.3 per cent year on year, while Northern Ireland remained the best performing region, with a modest 1.8 per cent fall.

Wales saw a sharp falls of 5.4 per cent from a drop of just 1.4 per cent last quarter. Scotland also saw a slowing in annual house price growth to minus 4.2 per cent, from minus 1.5 per cent in Q2.

Across northern England (which comprises North, North West, Yorkshire & The Humber, East Midlands and West Midlands), prices were down 3.9 per cent compared with Q3 2022. 

And southern England (South West, Outer South East, Outer Metropolitan, London and East Anglia) saw a 4.8 per cent year-on-year fall. London was the best performing southern region, although still saw a 3.8 per cent annual decline.