According to Nationwide, house prices have fallen 5.3% in a year – the sharpest drop since 2009
- Data shows the typical price of a home has fallen by £14,600 since August 2022
- According to Nationwide, the decline is “not surprising” due to higher mortgage rates.
- Sign buyers are opting for smaller homes to keep monthly payments under control
According to Nationwide’s August home price index, house prices fell 5.3 percent last year – the sharpest drop since 2009.
Britain’s largest building society reported that the typical house is now worth £259,153, an annual decrease of around £14,600 compared to August 2022.
That represents a larger decline than the 3.8 percent annual decline reported nationwide in July.
Between July and August, the average house price fell a seasonally adjusted 0.8 percent, or £1,675, it said.
Drop: The average house price in the UK is down more than 5% year-on-year, according to Nationwide
Nationwide chief economist Robert Gardner said the drop was “not surprising” given the recent hike in mortgage rates.
‘[This] “has caused activity in the housing market to be well below pre-pandemic levels,” he said.
“For example, mortgage approvals in recent months have been around 20 percent below the 2019 average, and data on mortgage applications suggests weakness has persisted more recently.”
Nationwide said the number of completed home purchases and sales in the first half of this year was nearly a fifth lower than in 2019 and 40 percent lower than in the first half of 2021, when the real estate market was booming due to pandemic-related lifestyle changes and stamp duty relief.
The Bank of England is expected to hike interest rates by 0.25 percent for the 15th consecutive month later this month.
Decrease: This graphic shows the development of the typical real estate price since 2013
Chris Druce, senior research analyst at property brokerage Knight Frank, said: “The Bank of England’s interest rate decision later this month and the accompanying messages will be a defining moment for the UK property market.”
“If we are nearing the peak of the rate-hike cycle, as assumed, we can expect buyer confidence to improve in the second half of this year, after a difficult period in which people’s spending power has fallen and activity has waned. “
“Price security allows buyers to plan more effectively, although affordability remains tight and we expect price and transaction volume pressures to continue this year and next.”
Change of pace: Property prices have largely fallen since mortgage rates have skyrocketed
Buyers are bridging the mortgage crunch with smaller homes
The number of completed home moves with a mortgage in the first half of 2023 was 33 percent below the level of 2019, while the number of first-time buyers was around 25 percent lower.
Gardner added, “A first-time buyer earning the average wage and buying a typical first-time home with a 20 percent down payment would now find their monthly mortgage payment absorbing more than 40 percent of their net income on a mortgage.” That’s a whopping 6 percent above the long-term average of around 29 percent.”
Those still buying homes are looking for smaller, less expensive properties, Nationwide said.
While transactions across all property types are below pre-pandemic levels, the biggest drop has been in single-family homes.
Downsizing: The largest transaction decline was in single-family homes
In the meantime, they have also remained relatively cheaper; Average prices are up just 13 percent since the pandemic began, compared to 23 percent for single-family homes.”
Gardner said, “There is evidence that buyers are looking to smaller, cheaper properties, with a smaller decline in apartments.”
While higher interest rates are deterring mortgage buyers from home purchases, Nationwide said purchases by cash buyers were still holding up relatively well, up 2 percent compared to the first half of 2019.
Iain McKenzie, CEO of The Guild of Property Professionals, said: “Cash is king at the moment as such buyers speed up the process for sellers – although they typically want more flexibility in asking price.”
Cash is King: Purchases by cash buyers are increasing compared to 2019