UK house prices have fallen at the fastest rate since July 2009, slumping 5.3% in August year on year, after falling 3.8% year on year in July, according to the latest figures from Nationwide Building Society.
The building society said prices fell by 0.8% in August taking into account seasonal effects.
Robert Gardner, Nationwide’s chief economist, said: “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. For example, 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 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.”
Commenting on the figures, Chris Druce, senior research analyst at Knight Frank, said: “The Bank of England’s rate setting decision later this month, and the messaging around it, will be a key moment for the UK housing market. If, as believed, we are near the peak of the rate-rising cycle we can expect buyer confidence to improve in the second half of this year, after a challenging period that has seen people’s spending power reduced and activity slow.
“Surety about rates will allow buyers to plan more effectively, although affordability will continue to be stretched and we expect pressure on pricing and transaction volumes to continue through this year and next. However, demand should prove more resilient than expected given the shock-absorber effect of strong wage growth, lockdown savings, the availability of longer mortgage terms, flexibility from lenders and the popularity of fixed-rate deals in recent years.”
Nationwide’s figures show that in the first half of 2023, the number of completed housing transactions was nearly 20% below pre-pandemic (2019) levels and circa 40% lower than in the first half of 2021.
Heather Powell, head of property and a partner at Blick Rothenberg, called on the government to act swiftly to reinvigorate the housing market.
“A regime that encourages first-time buyers, without inflating prices, is needed to ‘prime this pump’,” said Powell. “It is to be hoped that incentives such as ‘Help to Buy,’ with ceilings appropriate for a given region, are being discussed in the office of the minister of state for housing and planning. Our economic recovery will be assisted by releasing the capital triggered by a healthy, active housing market.”
She added: “Property sales in the year to 31 July 2023 are 341,730 down on those reported than in the year to 31 July 2022, and if you compare the sales to the year to 31 July 21, they have dropped by 23.3%. The government’s policy of the stamp duty holiday inflated transactions and pushed prices up in 2020 and 2021. Buyers made increased offers and pushed themselves to the limit, and lenders made mortgages available at high multiples of earnings. Whilst the repayments required were palatable when mortgage interest rates were low, remortgaging at rates in excess of 6% is causing significant heartache.
“Household expenditure is being cut back in all other areas to fund increased mortgage repayments – or to put aside the funds that will be required when a fixed rate matures in the next 12 months. Whilst this is an unhappy situation for the households it is a further problem for the UK government as it also holds back the recovery of the UK economy and will continue to hold it back.”
