Nationwide House Price Index: First Annual Decline in Property Prices Since June 2020

Annual house price growth slipped into negative territory for the first time since June 2020, with prices down 1.1% in February compared with the same month last year.

Moreover, February saw a further monthly price fall (-0.5%) – the sixth in a row – which leaves prices 3.7% below their August peak (after taking account of seasonal effects).

The recent run of weak house price data began with the financial market turbulence in response to the mini-Budget at the end of September last year.

While financial market conditions normalised some time ago, housing market activity has remained subdued.

This likely reflects the lingering impact on confidence as well as the cumulative impact of the financial pressures that have been weighing on households for some time.

Indeed, inflation has continued to outpace wage growth and mortgage rates remain significantly higher than the lows recorded in 2021.

Even though consumer sentiment has improved in recent months, it is still languishing at levels prevailing during the depths of the financial crisis, said Robert Gardner, Nationwide’s Chief Economist.

Where next?

Gardner continued, it will be hard for the market to regain much momentum in the near term since economic headwinds look set to remain relatively strong, with the labour market widely expected to weaken as the economy shrinks in the quarters ahead, while mortgage rates remain well above the lows prevailing in 2021.

Indeed, despite the modest fall in house prices, for a prospective first-time buyer earning the average income looking to buy the typical home, mortgage payments remain well above the long run average as a share of take-home pay.

In addition, deposit requirements remain prohibitively high for many and saving for a deposit remains a struggle given the rising cost of living, especially for those in the private rented sector, where rents have been rising strongly.

However, conditions should gradually improve if inflation moderates in the coming months as expected, easing pressure on household budgets.

Solid gains in nominal incomes together with weak or declining house prices will also support housing affordability, especially if mortgage rates edge lower in the coming months.

Jeremy Leaf, north London estate agent and a former RICS residential chairman, comments:

“These comprehensive and widely respected figures reiterate continuing worries about interest rates and inflation, which are keeping prices in check.

However, the market is definitely not in free-fall.

On the ground, we are seeing more listings and protracted sales so buyers have more choice, are taking longer and negotiating harder when making offers.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, comments:

“Average property prices fell in February as higher mortgage costs, along with the rising cost of living, have an inevitable impact on affordability.

Swap rates, which underpin the pricing of fixed-rate mortgages and have been falling since the turmoil created by the mini-Budget in September, have taken a turn and moved the other way in the past couple of weeks on the back of expectations of further base rate rises.

Subsequently, several lenders who launched sub-4 per cent five-year fixed-rate mortgages have since increased these, with mortgage rates likely to be up and down in coming weeks.

Borrowers should seek advice from a whole-of-market broker before either taking the plunge or holding off in the expectation that rates will come down further.”

Tom Bill, head of UK residential research at Knight Frank, comments:

“While most of the economy has moved on from the mini-Budget, the hangover is longer for the UK housing market.

It has led to a mismatch between the most recent anecdotal evidence and the latest data.

While last month saw the steepest annual house price decline in more than ten years, activity has been solid so far this year as buyers and sellers adapt to higher mortgage rates.

We expect transaction levels to fall from the heights of the pandemic and prices to decline by 5% this year but the UK housing market is far from being on its knees.”

CEO of Alliance Fund, Iain Crawford, comments:

“The first annual decline in house prices seen since June 2020 suggests that the pandemic market boom has officially fizzled out, although we’ve seen signs that property values have been normalising for some months now.

This was only to be expected given the financial strain facing many households, coupled with mortgage market turbulence that followed September’s blunderous mini budget.

However, the property sector has stood firm all things considered and we’ve seen growing confidence in the market so far in 2023, confidence that will only grow further as inflation eases over the coming months.”

Director of Benham and Reeves, Marc von Grundherr, comments:

“House prices have been sky high for quite some time and it’s fair to say that, having flown too close to the sun, they’re now starting to come back down to earth as a result of wider economic headwinds.

The good news is that this return to normality has been a smooth one so far and we’re yet to see the crash landing that many so widely predicted.”

Managing Director of Barrows and Forrester, James Forrester, comments:

“The high rates of house price growth seen in recent years simply weren’t sustainable and, in fact, a reduction in property values, however marginal, will be warmly welcomed by those struggling to overcome the high cost of homeownership.

That said, we’ve seen a strong start to the year where housing market activity is concerned and so those who do want to capitalise on cooling house prices are best advised to act sooner rather than later, as this negative trend certainly won’t last for long.”

Managing Director of House Buyer Bureau, Chris Hodgkinson, comments:

“While confidence in the housing market remains high, a combination of economic uncertainty, financial instability and increasing mortgage costs are now starting to take their toll where property values are concerned.

This was inevitable following such an unprecedented boom period and it’s likely that we’ll see further corrections over the coming months, as both buyer and seller continue to find their feet in a changing landscape.

However, we do believe that once this correction has been made, stability will return and house prices will rebound in the long term.”

Ben Woolman, Director at Woolbro Group, comments:

“Britain’s property market is descending into a Mexican standoff in which spooked sellers are jumping the gun.

Those who are being low-balled with paltry offers falling far below asking prices should instead hold their nerve and wait until buyer borrowing power returns, which it inevitably will.

Despite the doom and gloom, it is looking increasingly likely that inflation could fall below 2% by the end of the year.

If that prediction comes to pass, then it will give us a much clearer picture of when the Bank of England might start to lower the base rate, resulting in lower mortgage costs — albethey not as low as they were before the cost of living crisis.

Still, this could very well be the trigger point at which a greater number of buyers begin to ramp up their househunting efforts once again, injecting more competition into the market and driving up offers on properties.

Moreover, despite demand for new homes continuing to far outpace supply, Britain’s antiquated planning system means we are still nowhere near to building the required number of new homes each year.

Consequently, this will continue to prop up prices.”