According to Nationwide Building Society, UK house prices experienced a significant decline of 5.3% in August compared to the previous year, marking the sharpest annual drop in 14 years. This decline, which is the largest since July 2009 during the global financial crisis, can be attributed to the soaring mortgage costs that are discouraging potential buyers. The average house prices have decreased by more than £14,500 in the span of a year, and mortgage approvals have plummeted by 20% compared to pre-pandemic levels.
In August, prices fell by 0.8% compared to July, resulting in the average price of a UK home dropping to £259,153. Robert Gardner, the chief economist at Nationwide, stated that this decline is not surprising given the steep rise in borrowing costs in recent months, which has led to a decrease in housing market activity.
Mortgage rates have surged in response to the Bank of England, which has raised interest rates 14 times since December 2021, from 0.1% to 5.25%. This significant increase in mortgage rates has contributed to a 20% decrease in house sales completions in the first half of the year compared to 2019. Additionally, completions have declined by approximately 40% compared to 2021 when the housing market experienced a boom due to factors such as low interest rates and a government-imposed stamp duty holiday.
While the percentage of cash buyers remains strong, the number of completions involving mortgages has sharply declined. Home mover completions with mortgages in the first half of 2023 were 33% lower than 2019 levels, and first-time buyer numbers were approximately 25% lower. In contrast, cash purchases have actually increased by 2%. This discrepancy in mortgage activity is a result of mounting affordability pressures caused by the sharp rise in mortgage rates since the previous autumn.
A report by property portal Zoopla predicts that the number of homes sold in the UK this year will reach its lowest level in over a decade, primarily due to the exorbitant cost of mortgages deterring potential buyers. House sales completions are expected to decline by 21% compared to the previous year, reaching around 1 million in 2023, the lowest level since 2012.
Tomer Aboody, a director of property lender MT Finance, expressed the difficulties faced by buyers in terms of affordability due to constant interest rate increases. Aboody suggests that it would be beneficial for the Bank of England to postpone the next rate rise, allowing the market some breathing space to adjust, especially considering the recent positive developments in inflation.
In summary, the UK housing market has experienced a significant decline in prices, primarily driven by soaring mortgage costs. This has resulted in a decrease in housing market activity, with mortgage approvals and completions significantly lower than pre-pandemic levels. The future of the market remains uncertain, with predictions of a further decline in home sales and affordability challenges for buyers.
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