UK house prices have fallen at the fast annual rate since 2009 according to the Nationwide House Price Index.
July saw a 0.2% drop month on month, which pushed the fall in annual prices from 3.5% in June to 3.8%. This represents the sharpest decline in 14 years, when the global financial crisis was in full swing.
The drop in house prices means that the average price for a home in the UK now stands at £260,828, down from £262,239 in June and 4.5% lower than the peak reached in August last year.
Nationwide’s House Price Index attributes the decline to the volatile UK interest rates, which has impacted those looking to buy properties with a mortgage.
Regarding the rising interest rates, Robert Gardner, Nationwide’s Chief Economist, said: “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.”
Robert continued: “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% below the levels prevailing at the same time last year and around 10% 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 c20% below 2019 levels.
Despite the significant drop in house prices, Robert Gardner believes that the reduction in prices and market activity is likely to be short term.
“A relatively soft landing is still achievable, providing broader economic conditions evolve in line with our (and most other forecasters) expectations. In particular, 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.”
Marc von Grundherr, director of London-based estate agents, Benham and Reeves, commented: “We’ve seen inflation ease in recent weeks, however, interest rates and the resulting cost of borrowing remain high and this is continuing to dampen buyer appetites, which in turn is impacting house prices.”
“While we don’t anticipate any notable correction on the horizon, we expect these lethargic market conditions to remain in the short-term, until such time the cost of climbing the ladder starts to reduce.”
Managing director of Barrows and Forrester, James Forrester, commented: “A gloomy market outlook on the face of it, but rather than entering a deep freeze, it’s fair to say the market is thawing. Yes, affordability remains an issue, however, just this week we’ve seen a big spike in mortgage market activity, which suggests that an uplift in house prices is just around the corner.”
“As interest rates begin to reduce, this growing market momentum will start to snowball and this will reverse the downward house price trends of recent months.”
Managing director of House Buyer Bureau, Chris Hodgkinson, commented: “The weakest level of annual house price growth since July 2009 is sure to cause alarm for the nation’s home sellers and many will be keen to sell their home quickly before the rot sets in any further.”
“The good news is that we’re not in the midst of a market crash, albeit we are seeing a downward correction. However, the real challenge at present is the heightened level of market instability, the ability to actually find a buyer in a proceedable position and, once you have, making it through to completion without the transaction falling through.”
CEO of Octane Capital, Jonathan Samuels, commented: “The current market outlook isn’t quite as turbulent as today’s house price figures may suggest and, in fact, we’ve seen a boost to market sentiment in the form of mortgage approval activity outperforming wider expectations.”
“While this increase in buyer appetites will take some time to filter through to top-line house price growth, it’s certainly an early sign that the worst is behind us.”
