UK house prices fell 5.3% in August compared with the same month last year, the fastest annual drop in 14 years, according to Nationwide Building Society.
The lender said the fall, which was the biggest since July 2009, when the global economy was in the depths of the financial crisis, was driven by soaring mortgage costs, which are putting off potential buyers. Average house prices are more than £14,500 lower than they were a year ago and mortgage approvals have plummeted by a fifth compared with pre-pandemic levels.
Prices fell 0.8% in August compared with July, dragging down the typical price of a UK home to £259,153.
“The softening is not surprising given the extent of the rise in borrowing costs in recent months, which has resulted in activity in the housing market running well below pre-pandemic levels,” said Robert Gardner, the chief economist at Nationwide.
Mortgage rates have risen sharply over recent months in response to the Bank of England, which has raised interest rates 14 times since December 2021, from 0.1% to 5.25%.
Nationwide said the number of completions of house sales was down 20% in the first half of the year compared with 2019, and about 40% down on 2021, when the UK experienced a housing sales boom because of factors including low interest rates and the implementation of a stamp duty holiday by the government.
While the proportion of people buying with cash has remained strong, the number of completions by those requiring a mortgage has plummeted.
“Home mover completions with a mortgage in the first half of 2023 were 33% lower than 2019 levels, while first-time buyer numbers were about 25% lower,” Gardner said. “By contrast, cash purchases were actually up 2%. The relative weakness of mortgage activity reflects mounting affordability pressures as the result of the sharp rise in mortgage rates since last autumn.”
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Earlier this week, a report by the property portal Zoopla predicted that the number of UK homes sold this year would fall to the lowest level in more than a decade, with the soaring cost of mortgages putting off homebuyers.
House sales reaching completion are expected to fall 21% year on year to about 1m in 2023, the lowest level since 2012.
“Constant interest rate rises are making affordability difficult for buyers who are trying to move, with many having little option but to wait until rates settle,” said Tomer Aboody, a director of the property lender MT Finance. “With some better news on inflation recently, it would be useful if the Bank of England postponed the next rate rise, giving the market some breathing space to adjust.”