8 August 2023 – New data suggests that house prices have declined sharply in July, falling at the fastest rate for 14 years.
Newly released data shows that house prices continue to fall. In July, property prices have declined by 3.8%, which is the biggest annual drop for 14 years. This is a further fall from June, when house prices fell by 3.5%.
The average UK house price is now at £260,828, which is around £13,000 lower than the peak in August 2022, according to Nationwide.
On a month-on-month basis, house prices have declined by 0.2% in July compared to June this year. This means house prices are now 4.5% lower than in August last year.
Affordability A Challenge Despite Falling House Prices
Falling house prices should make it easier for potential buyers to afford a new home. However, Nationwide said that high mortgage rates mean that many people struggle to afford to buy a property, despite falling prices.
Because inflation has remained stubbornly high, the Bank of England has continued to raise interest rates, which currently stand at 5.25%. As a result, mortgage rates have risen and fixed-term deals have exceeded 6%, nearing 7%.
Especially first-time buyers have been hard hit by the recent mortgage rate increases. Nationwide said that a buyer on an average wage looking for a 20% deposit mortgage, would have to spend 43% of their salary on their mortgage payment.
This is an increase of 11% compared to 12 months ago, when buyers had to spend 32% on mortgage payments.
But it’s not just the monthly payments that pose a challenge for potential buyers. Deposit requirements have also risen sharply. Between 2020 and autumn 2022, house prices have risen by 25%.
As a result, a 10% deposit is now the equivalent of 55% of the gross annual average income. This proves too much for many, especially, because the cost-of-living crisis and sky-high rents made it difficult to save money.
This challenging affordability picture helps to explain why housing market activity has been subdued in recent months. There were 86,000 completed housing transactions in June, 15% below the levels prevailing the same time last year and around 10% below pre-pandemic levels. More timely mortgage approval data showed a slight increase in activity in June, though most of these applications will pre-date the more recent rise in longer term interest rates. Moreover, activity is still c20% below 2019 levels.
Robert Gardner, Chief Economist at Nationwide
House Prices Have Declined The Sharpest In South-East England
Halifax has also reported that house prices have been falling. According to their data, the average house price dropped by 2.4% in July compared to a year ago. There is a slight slowdown of the decline compared to last month, when prices dropped by 2.6%.
While house prices have fallen almost in all regions of the UK, the south-east of England has seen the sharpest drop, with house prices declining by £15,500 in July, according to data by Halifax.
This is a drop of 3.9% compared to July 2022, which means the average house price in this region is now £382,489.
Wales also saw average house prices fall sharply, with a decrease of 3.3% to £214,495. The high street lender said that during the pandemic, house prices in Wales grew at the fastest rate. But some of this growth is now being reversed.
Another big drop in house prices has been seen in Greater London, where house prices have declined by 3.5% and now stand at £531,141.
The only region where house prices didn’t fall in July is the West Midlands. In this region prices remained unchanged.
North East Of England Still Cheapest Region To Buy
With the average house price at £531,141, Greater London remains the most expensive place to buy a property by far. The south east of England follows with an average property price of £382,489, despite a sharp decline.
With an average house price of £167,594, the north east of England is still the cheapest region to buy a home, followed by Northern Ireland and Scotland.
But despite high mortgage rates, which make affordability a challenge, Halifax said the market does show some resilience.
In particular, we’re seeing activity among first-time buyers hold up relatively well, with indications some are now searching for smaller homes, to offset higher borrowing costs.
Kim Kinnaird, Director at Halifax Mortgages
Many commentators think that mortgage rates might have peaked now and expect that banks and building societies will soon start to lower the rates again.
While it is unlikely that we will see rates as low as 1%, as before the pandemic, industry insiders believe that mortgages will not stay at the elevated level they are now. However, borrowers will have to get used to higher rates.
And even though house prices have declined in the past months, it is not expected that the housing market will crash. The Office of Budget Responsibility expects house prices to fall by 10% in the next two years.
