UK house prices fall at fastest annual rate in 14 years

The price of a typical home is now 4.5% below the August 2022 peak, Nationwide Building Society said.

Figures suggest the price of a typical home is 4.5% below the August 2022 peak (Gareth Fuller/PA) (PA Archive)

The average UK house price fell at the fastest annual rate in 14 years in July, according to an index.

Property values declined by 3.8% on average annually in July, marking the weakest reading since July 2009, Nationwide Building Society said.

House prices dropped by 0.2% month-on-month in July, to reach £260,828 on average.

The price of a typical home is now 4.5% below the August 2022 peak, Nationwide said.

Robert Gardner, Nationwide’s chief economist, said: “Investors’ views about the likely path of UK interest rates have been volatile in recent months.”

A prospective buyer, earning the average wage and looking to buy the typical first-time buyer property with a 20% deposit, would see monthly mortgage payments account for 43% of their take home pay

Robert Gardner, Nationwide Building Society

He added: “There has been a slight tempering of expectations in recent weeks but longer-term interest rates, which underpin mortgage pricing, remain elevated.

“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% deposit, would see monthly mortgage payments account for 43% of their take-home pay (assuming a 6% mortgage rate).

“This is up from 32% a year ago and well above the long-run average of 29%.

“Moreover, deposit requirements continue to present a high hurdle – with a 10% deposit equivalent to 55% of gross annual average income.”

He added that unemployment is expected to remain low and the “vast majority of existing borrowers should be able to weather the impact of higher borrowing costs”.

The Bank of England base rate stands at 5% and is expected to potentially rise further on Thursday as the Bank tries to quell inflation.

Mr Gardner said: “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 (the Bank of England base rate) peaks.”

A few lenders, including HSBC, Barclays and Nationwide, have reduced their fixed-rate mortgage pricing on the back of better-than-expected inflation news

Mark Harris, SPF Private Clients

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “With another 25 basis points interest rate rise expected from the Bank of England later this week, we are not out of the woods just yet when it comes to rising mortgage costs.

“However, a few lenders, including HSBC, Barclays and Nationwide, have reduced their fixed-rate mortgage pricing on the back of better-than-expected inflation news. This has led to a calming of swap rates, which underpin the pricing of fixed-rate mortgages, after weeks of considerable volatility.”

Nathan Emerson, CEO of property professionals’ body Propertymark, said: “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.”

John Ennis, CEO of London-based estate agent Chestertons, said: “In London, the property market remained stable throughout July with buyer registrations reaching the same level as in previous months. Whilst there were fewer first-time-buyers with support from the bank of mum and dad, we witnessed an increase in cash buyers and higher-valued property sales in excess of £1 million.”

He added: “Some buyers who are currently registering are optimistic that we will be seeing more favourable interest rates at some point.”

Nicola Schutrups, managing director at Southampton-based mortgage broker The Mortgage Hut, said: “Further falls in house prices are likely for the rest of 2023 but if inflation continues to come down and the jobs market remains strong, there’s still a chance for a soft landing.”

Iain McKenzie, CEO of the Guild of Property Professionals, said: “The latest inflation figures show some light at the end of the tunnel, and there is still a good chance that the year will be softer on the industry than was previously forecast.”

Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said: “We think that house prices will have to fall by about 8% from their peak before demand and supply come back into balance.”

Myron Jobson, senior personal finance analyst at interactive investor, said: “Sellers may have to adjust to the new status quo in the housing market by being flexible on price, given the growing challenges posed by high mortgage rates and inflation. Buyers may be forced to adjust their criteria or wait even longer until they can make the numbers work to get on or move up the property ladder.”

Tom Bill, head of UK residential research at Knight Frank, said: “While we expect UK prices to fall by 5% this year, demand should prove more resilient than expected between now and the general election given the cushioning effect of wage growth, high levels of housing equity, lockdown savings, the availability of longer mortgage terms, forbearance from lenders and the popularity of fixed-rate deals in recent years.”