UK house prices plummet as investors panic and affordability crisis deepens

UK House Prices Experience Steepest Decline in 14 Years

UK house prices have fallen at the fastest annual rate in 14 years, according to a report by Nationwide Building Society. In July, property values dropped by an average of 3.8% compared to the previous year, marking the weakest reading since July 2009. The average price of a home also decreased by 0.2% month-on-month, reaching £260,828. This decline means that the price of a typical home is now 4.5% below the peak reached in August 2022.

Factors Contributing to the Decline

The chief economist of Nationwide, Robert Gardner, attributes this fall to the volatility in investors' views on UK interest rates. He also highlights the stretched housing affordability, with average mortgage payments accounting for 43% of a prospective buyer's take-home pay. Furthermore, deposit requirements continue to present a high hurdle, with a 10% deposit equivalent to 55% of gross annual average income. Despite these challenges, Gardner expects the impact of higher borrowing costs to be manageable for the majority of existing borrowers, given low unemployment and strong wage growth. The Bank of England base rate currently stands at 5%, and it is anticipated that it may rise further in an attempt to control inflation. However, some lenders, including HSBC, Barclays, and Nationwide, have recently reduced their fixed-rate mortgage pricing, which has helped to stabilize mortgage rates.

Signs of Improvement in the Housing Market

Property professionals' body Propertymark and London-based estate agent Chestertons report a return to normal pace in the housing market, with steady buyer registrations and an increase in cash buyers and higher-valued property sales. Mortgage broker SPF Private Clients also notes that fixed-rate mortgage products are dampening the impact of rate increases. Overall, while the housing market is expected to remain subdued in the near term, healthy rates of income growth and modestly lower house prices should contribute to improving housing affordability over time.