House prices fell again last month but a soft landing is still possible for the property market

“Investors’ views about the likely path of UK interest rates have been volatile in recent months, with the projected Bank Rate peak fluctuating between five per cent in mid-May and 6.5 per cent in early July. There has been a slight tempering of expectations in recent weeks but longer-term interest rates, which underpin mortgage pricing, remain elevated.”

He adds: “As a result, housing affordability remains stretched for those looking to buy a home with a mortgage. For example, a prospective buyer, earning the average wage and looking to buy the typical first-time buyer property with a 20 per cent deposit, would see monthly mortgage payments account for 43 per cent of their take home pay (assuming a six per cent mortgage rate).

“This is up from 32 per cent a year ago and well above the long-run average of 29 per cent. Moreover, deposit requirements continue to present a high hurdle – with a 10 per cent deposit equivalent to 55 per cent of gross annual average income.

“This challenging affordability picture helps to explain why housing market activity has been subdued in recent months. There were 86,000 completed housing transactions in June, 15 per cent below the levels prevailing the same time last year and around 10 per cent below pre-pandemic levels.

“More timely mortgage approval data showed a slight increase in activity in June, though most of these applications will pre-date the more recent rise in longer term interest rates. Moreover, activity is still around 20 per cent below 2019 level.”

However,Mr Gardner says that a relatively soft landing is still a possibility, providing broader economic conditions evolve in line with expectations, including unemployment, which is expected to remain low at below five per cent. He adds that the vast majority of existing borrowers should be able to weather the impact of higher borrowing costs, given the high proportion on fixed rates, while affordability testing should ensure that those needing to refinance can afford the higher payments.

He concludes: “While activity is likely to remain subdued in the near term, healthy rates of nominal income growth, together with modestly lower house prices, should help to improve housing affordability over time, especially if mortgage rates moderate once Bank Rate peaks.”

Nathan Emerson, CEO of estate agency body Propertymark, says: "Our member agents report the number of valuations for sale conducted per branch remaining steady and a return to normal pace in the market is evident despite ongoing economic turbulence. With a core portion of the country still looking to move home, this is putting buyers in the driver’s seat who are now able to negotiate and secure a property at a reasonable price, playing a part in combating rises in mortgage rates.”