Largest house price fall for 14 years – with further drop expected

HOUSE PRICES have fallen by almost £15,000 in the biggest annual slump for 14 years.

Property values are down 5.3pc from their peak in August last year, leaving the market in its weakest state since 2009, new figures show.

Economists warned the drop marked the start of further “significant” falls.

An average home has lost £14,600 of its value in the past 12 months, following a sharp rise in mortgage rates and a cooling in the market, according to Britain’s biggest building society, Nationwide. The rate at which house prices are now falling recorded in its house price index was far more severe than last month, when negative house price growth for the year to July stood at 3.8pc. Values fell 0.8pc last month.

Robert Gardner, Nationwide’s chief economist, said activity in the housing market had fallen to “well below” pre-pandemic levels due to the rise in borrowing costs.

He added: “Mortgage approvals have been around 20pc below the 2019 average in recent months and mortgage application data suggests the weakness has been maintained more recently.”

The rate on the average two-year mortgage stood at 6.7pc at the end of last month, according to analysts Moneyfacts. Less than two years ago at the end of 2021, central interest rates stood at a record low of 0.1pc.

However, Mr Gardner said the vast majority of borrowers on fixed rates would be able to weather higher costs.

He said: “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.”

Some economists have warned house prices still have further to fall, predicting drops of as much as 10pc. Andrew Wishart, senior property economist at Capital Economics, said: “Following the drop in mortgage approvals in July, the 0.8pc month-on-month fall in house prices in August provided further evidence that the renewed increase in mortgage rates is now taking its toll on the housing market.

“With mortgage rates set to remain between 5.5pc and 6pc for the next 12 months, and second-hand supply on the market becoming less tight, we think the August data marks the start of a significant further drop in house prices.”

Tomer Aboody, of property lender MT Finance, called on the Bank of England to postpone another rate rise to give the market “some breathing space to adjust”.

He said: “The declining number of transactions, combined with negativity in the market, is resulting in a softening of property prices, a trend which has been evident for several months.

“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.” The financial strain higher mortgage rates are putting on movers is evident through the types of properties being bought, with the number of detached home purchases down by close to 40pc.

In contrast, the total number of flats being bought by homemovers has dropped by 25pc over the same period.

However, other areas of the market are seeing an increase in activity. Removed from the pressures of increased interest rates, demand from cash buyers has remained resilient in an otherwise sluggish market .

Cash purchases are up 2pc compared with pre-pandemic levels, while completions by home movers with a mortgage are down 33pc from 2019.