UK house prices have fallen by 5.3% compared to August last year, marking the largest annual decline since 2009, according to Nationwide Building Society. The drop equates to a £14,600 decrease in the value of a typical home since prices peaked in August 2022.
Nationwide attributed the decline to higher borrowing costs, which have slowed housing market activity. Mortgage approvals are currently about 20% below pre-Covid levels. The Bank of England has raised interest rates 14 times since December 2021, bringing the base rate to 5.25%, leading lenders to increase mortgage rates.
Robert Gardner, Nationwide's chief economist, said the fall in prices was “not surprising” given the rise in borrowing costs. He noted that affordability is “much more stretched than it was before,” with typical mortgage rates now around 6% compared to 1.5% in late 2021. “Clearly that has had a big impact on the market as a whole,” he added. “I think it is going to take time for things to pick up at all.”
The average UK house price fell to £259,153 in August, down from a peak of £273,751 in August 2022. Despite the decline, prices remain higher than in August 2021, when the average was £248,857. Nationwide’s figures only cover buyers with mortgages, who account for 60% of sales according to Zoopla.
Gardner said there has been a “modest shift” towards smaller, less expensive properties, with flats seeing a smaller decline in transactions compared to detached houses. Mortgage completions in the first half of 2023 were 33% lower than in 2019, while first-time buyer numbers fell 25% and buy-to-let purchases dropped 30% compared to pre-pandemic levels.
A first-time buyer earning the average wage and purchasing a typical property with a 20% deposit would now spend over 40% of their take-home pay on mortgage payments. Gardner said that while activity is likely to remain subdued in the near term, rising earnings and lower house prices “should help improve housing affordability over time, especially if mortgage rates moderate once interest rates peak.”
