House prices falling at fastest rate since 2009

House prices dipped at their fastest rate since 2009 last month, new data shows.

The latest Nationwide House Price Index revealed average property values declined 3.8% annually in July, the weakest reading since July 2009.

It is a steeper fall than the annual decline of 3.5% recorded in June, while the monthly drop was 0.2%.

As a result, the price of a typical home is now 4.5% below its August 2022 peak at £260,828.

Commenting on the figures, Robert Gardner, Nationwide's chief economist, said high interest rates mean housing affordability remains stretched for those looking to buy a home with a mortgage. 

He added: “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 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.”
 

Karen Noye, mortgage expert at Quilter said the future may see affordability pressures driving a downturn in house prices, with other recent indices indicating a flattening or decline in house prices. 

She added: “A significant drop in prices or a massive wage surge would be necessary to improve these troubling affordability ratios. 

“However, both scenarios seem unlikely. As such, the construction of new homes to alleviate the supply-demand tension, thereby assisting first-time buyers, could emerge as a primary point of contention in next year's election.”

Tom Bill, head of UK residential research at Knight Frank, said: “Higher borrowing costs have knocked sentiment and forced buyers to recalculate their budgets but the property market hasn’t slammed on the brakes. 

“The bank rate is nearing its peak, which means that while sentiment will remain subdued, it will only improve in the second half of this year. That said, prices and sales volumes will come under pressure as the market descends from the highs of the pandemic and adjusts to the new lending environment. 

“While we expect UK prices to fall by 5% this year, demand should prove more resilient than expected between now and the general election given the cushioning effect of wage growth, high levels of housing equity, lockdown savings, the availability of longer mortgage terms, forbearance from lenders and the popularity of fixed-rate deals in recent years.”