UK house prices have fallen at their fastest rate since July 2009 as rising interest rates cool the property market.
Nationwide has reported this morning that the average house price fell by 3.8% year-on-year in July, the biggest drop since the aftermath of the financial crisis.
That’s an increase on the 3.5% annual drop in house prices in June, and takes the price of a typical home down to 4.5% below the August 2022 peak.
Prices dipped by 0.2% in July alone, on a seasonally adjusted basis, to an average of £260,828, down from £262,239.
Robert Gardner, Nationwide’s chief economist, says the increase in interest rates in recent months have made it more challenging for prospective buyers to afford a mortgage on a new home.
For example, a prospective buyer, earning the average wage and looking to buy the typical first-time buyer property with a 20% deposit, would see monthly mortgage payments account for 43% of their take home pay (assuming a 6% mortgage rate). This is up from 32% a year ago and well above the long-run average of 29%.
Moreover, deposit requirements continue to present a high hurdle – with a 10% deposit equivalent to 55% of gross annual average income.
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.