In August, house prices fell by 0.8% when compared to July, Nationwide’s latest House Price Index has revealed.
The average house price was 5.3% below its peak in August 2022, at £259,153, representing an annual fall of approximately £14,600 on a typical home.
Robert Gardner, chief economist at Nationwide, said: “August saw a further softening in the annual rate of house price growth to -5.3%, from -3.8% in July, the weakest rate since July 2009. Prices fell by 0.8% over the month, after taking account of seasonal effects.
“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.”
He added: “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.
“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%.
“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 29%.”
Jeremy Leaf, North London estate agent and a former RICS residential chairman, said: “Cash buyers are more dominant in the market as house prices continue to be supported by a shortage of stock and fewer, but more serious, buyers as part of a two-tier market.
“Serious sellers are recognising they may not achieve exactly what was originally anticipated but, bearing in mind that four out of five are also buyers, they‘re concentrating on the difference between the two prices rather than headline figures.
“Those sellers refusing to recognise the new realities and that prices are softening, remain on the market and often have to accept lower than their original valuation in order to eventually achieve that move.”
Reaction:
Emma Jones, managing director of When The Bank Says No:
“Higher mortgage rates are hitting the property market for six.
“The Nationwide August house price report shows the full impact of the new mortgage environment we’re in and it’s brutal. Borrowers now need to be savvy.
“If the past few months have taught us anything, it’s that rate offerings are not around for long so if you like the look of a deal today, ensure you secure the rate now rather than miss out.
“It is positive to see more and more rate reductions on a daily basis but we need to see lower 2-year deals as most borrowers don’t want to commit to 5-year fixes at the moment, where most of the savings are.”
Christian Duncan, managing director of the Manchester Mortgage Centre:
“These latest figures from the Nationwide highlight in no uncertain terms the impact of the new rate era we find ourselves in.
“With mortgage rates now significantly higher, the property market is under phenomenal pressure at the moment.
“But while home movers are very cautious, we are still seeing first-time buyer enquiries come in from across the UK.
“Since the mini-Budget and with all the recent rate increases, first-time buyers have changed their mindsets and are no longer looking to borrow as much as possible but are coming forward with a maximum spend per month and looking to find a property that is in line with their budget.
“This can only be a good thing for the property market as a whole, as right now many borrowers are leveraged up to the hilt. The net effect of first-time buyers negotiating hard is that the top end of the market will likely contract.”
David Stirling, independent financial adviser at Mint Mortgage & Protection:
“Simply dire data from the Nationwide. It’s no surprise, of course, given the sharp increase in the cost of borrowing compared to a year ago.
“Many borrowers are looking at extending their mortgage terms to try to help them manage their monthly mortgage payments.
“With this in mind, HSBC extending mortgage terms to 40 years is a very welcome criteria change. It won’t suit everyone and the maximum age is still 80 but it could help young, first-time buyers in particular to get out of the rental trap.”
Imran Khan, co-founder of PropertyLoop:
“The UK property market, especially in London, is extremely fragile. In August, we observed noticeably weaker demand, partly due to seasonal factors, but also reflecting larger economic uncertainties.
“Nationwide’s hopeful narrative of a ‘soft landing’ seems increasingly optimistic given the slew of headwinds.
“According to Zoopla, we’re on track for the lowest number of sales completions since 2012, and this underscores the market’s vulnerability.
“This dampening is particularly noticeable in southern England where higher mortgage rates have deterred buyers.
“Vendors now know that realistic pricing is no longer optional but a necessity to close deals. The key determinants for house prices over the next 12 months will unquestionably be inflation, interest rates and the overall economic climate.
“The remortgage crunch looms larger by the day and could be the catalyst for forced sales, potentially at scale.”
Kundan Bhaduri, director of The Kushman Group:
“This latest data from the Nationwide paints a bleak picture of the UK property market.
“The London property market, in particular, is currently at a critical juncture, with experts warning of a potential crash that could result in a 20% drop in property values if mortgage rates remain high.
“Despite 14 interest rate increases by the Bank of England, property prices in the capital have remained relatively resilient.
“One major concern is the nearly one million fixed-rate mortgages, including around 100,000 in London, that need refinancing before the end of the year.
“Homeowners will face substantial increases in repayments at a time when the cost of living crisis is already straining budgets.
“Despite the uncertainties and potential price declines, we see opportunities in the London property market.
“We are very optimistic about the market over the next year and see a clear buying opportunity.”
Ross McMillan, owner at Blue Fish Mortgage Solutions:
“”In Scotland, the market seems determined to buck the trend elsewhere in the UK, with very little tangible evidence of a significant fall in prices, for now at least.
“Fuelled predominantly by a vibrant first-time buyer market, any correction in prices at the lower end of the market is negligible, with demand continuing to outstrip supply in this area and competitive closing dates sustaining prices above home report valuations.
“The middle market, however, is largely stagnant with very few sellers choosing to move and the very highest end of the market unappealing to many with current borrowing costs.
“The last quarter of 2023 is likely to be relatively quiet but as interest rates potentially edge down as the grip of inflation begins to recede, we could see a significantly more active purchase market in 2024.”
John Choong, markets analyst at investing comparison platform, InvestingReviews.co.uk:
“This is a grim print from the Nationwide. Sadly, house prices are likely to continue falling for the rest of the year.
“However, as hard as it may seem to believe, the ‘soft landing’ touted by Nationwide last month is still possible given the recent movements in gilt yields and the rollback in mortgage rates.
“That said, the cuts in mortgage rates will take time to flow through into house prices. Plus, rates are still way above their historical averages.
“But if inflation continues to moderate in the coming months, the decline in house prices may start to bottom out. This is due to the fact that real wages are finally trumping inflation, with spending power and disposable income rebounding swiftly.
“As such, housing affordability is now returning. This should serve as encouraging news for house builders, as the ratio of house prices to average earnings has now declined to 5.4x from 5.8x last year for first-time buyers.
“Provided this trend continues with inflation falling, a rebound in the housing market could happen sooner rather than later.”
Neezam Romjon, co-founder of Rebus Financial Services:
“Demand for property dropped off markedly in August, as reflected in this data. Far higher interest rates and uncertainty around house prices are the key drivers of the decline in activity, although there was also a huge amount of transactions during the Stamp Duty holiday.
“The brutal reality is that most people are yet to feel the full force of their mortgage payments increasing as they are still on their previous mortgage deal of 1% to 3%.
“My concern is that although mortgage rates are dropping slightly and levelling off, they are still significantly higher than what most mortgage borrowers are currently paying and we are yet to see the full impact of this.
“The remortgage crunch is very real. This is likely to trigger more people selling in a hurry before their current deal ends and they are faced with paying hundreds of pounds more a month that they simply cannot afford. I think we will see house prices drop further this year as a result.”
Riz Malik, director of R3 Mortgages:
“The housing market has gone into hibernation. Prices will continue to fall unless there’s a substantial drop in interest rates or property values decrease sufficiently to offset the rise in interest rates.
“However, due to the repossession guidelines within the Mortgage Charter, a drastic drop in UK house prices isn’t likely in the near future.”
