The softening is not surprising, given the extent of the rise in borrowing costs in recent months, which has resulted in activity in the housing market running well below pre-pandemic levels, according to Robert Gardner, Nationwide’s chief economist.

He points out that mortgage approvals have been around 20% below the 2019 average in recent months and mortgage application data suggests the weakness has been maintained more recently.

Nevertheless, a “relatively soft landing is still achievable”, providing broader economic conditions evolve in line with forecasters’ expectations.

Gardner explained: “Unemployment is expected to remain low [below 5%] and the vast majority of existing borrowers should be able to weather the impact of higher borrowing costs, given the high proportion on fixed rates, and where affordability testing should ensure that those needing to refinance can afford the higher payments.

“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.”

“In the first half of 2023, the number of completed housing transactions was nearly 20% below pre-pandemic (2019) levels and c.40% lower than in the first half of 2021 – though the latter reflects the boost to activity from pandemic-related shifts in housing preferences, the stamp duty holiday and ultra-low borrowing costs.

“An examination of the composition of transactions reveals that cash purchases, though down from the 2021 highs, have been remarkably resilient, while purchases involving a mortgage have slowed much more sharply, as shown in the chart below.”

“Home mover completions (with a mortgage) in the first half of 2023 were 33% lower than 2019 levels, whilst first-time buyer numbers were c.25% lower. Buy-to-let purchases involving a mortgage were nearly 30% below pre-pandemic levels. By contrast, cash purchases were actually up 2%.

According to Nationwide, the relative weakness of mortgage activity reflects mounting affordability pressures as a result of the sharp rise in mortgage rates since last autumn, which would not have affected cash buyers. Indeed, a first-time buyer earning the average wage and buying a typical first-time buyer property with a 20% deposit would now see their monthly mortgage payment absorb over 40% of their take-home pay (with a mortgage rate of 6%) – well above the long run average of c.29%.

Gardner says for owner-occupiers buying with a mortgage, there has also been a modest shift in the type of properties being purchased.

He added: “While transactions are lower than pre-pandemic levels across all property types, the biggest decline has been in detached houses.

“There are signs that buyers are looking towards smaller, less expensive properties, with flats seeing a smaller decline. This shift may, in part, reflect the ending of the Help to Buy scheme, which helped those with a smaller deposit purchase a newly built home. Flats have also remained relatively more affordable; average prices have risen by only 13% since the onset of the pandemic, compared with 23% for detached properties.”