UK house prices fell by 5.3% in the year to September, with drops in price in every region of the country as rising interest rates squeeze the market.
The house price index by Nationwide, the biggest British building society, showed that seasonally adjusted prices stalled over the month in September, after a 0.8% drop in August.
The price of an average home was £257,808 in September, nearly £14,500 lower than a year earlier.
The housing market in Britain has slowed in recent months as the Bank of England has raised interest rates sharply to combat a surge in inflation triggered by coronavirus pandemic disruption after Russia’s invasion of Ukraine, which sent energy prices soaring.
The Bank responded with a series of interest rate rises that remained unbroken until last month. The September meeting of the Bank’s monetary policy committee was the first time in almost two years that it left rates unchanged, giving hope for an end to further rises in borrowing costs.
However, the effects of the rate rises remain clear in the housing market. Only 45,400 mortgages were approved for house purchase in August, according to the latest data available from the Bank of England. Nationwide said that figure was about 30% below the monthly average in 2019 before the start of the pandemic and the consequent volatile period in the housing market.
Robert Gardner, Nationwide’s chief economist, said: “This relatively subdued picture is not surprising given the more challenging picture for housing affordability. For example, someone earning an average income and purchasing the typical first-time buyer home with a 20% deposit would spend 38% of their take home pay on their monthly mortgage payment – well above the long-run average of 29%.”
Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, a consultancy, said there had been a “severe blow to affordability from higher mortgage rates”, but that recent increases in consumer confidence could buoy up demand after a few more months of downturn.
Gardner said the Bank’s pause had helped to push down longer-term interest rates, which could ease prices for mortgages. Yet the prospect of a return to the record low rates of the pre-pandemic period – unprecedented in history – was distant, he said.
He expected the housing market to remain “fairly subdued” in the next few months, after declines in price in every region of the country during the July to September quarter of 2023. The biggest decline was evident in the south-west of England, where prices dropped by 6.3% in the quarter, and six out of 13 regions experienced drops of more than 5%. The smallest drop was in Northern Ireland, down by 1.8%.
