‘Weakest since 2012’: UK house price average falls to £257,406

Prices down 1.1% year-on-year in February – the first annual decline since June 2020

Property for sale signs in Tynemouth, North Tyneside, England
House prices are suffering the ‘worst slump’ in 11 years
(Image credit: Washington Imaging/Alamy Stock Photo)

Prices of property across the UK were down 1.1% year-on-year in February – falling to an average of £257,406 compared to £258,297 in January, according to Nationwide’s latest index. This sees the annual house price growth slip into negative territory for the first time since June 2020 and is the “weakest” since November 2012.

Suffering the “worst slump” in 11 years and falling for the sixth successive month, the latest house price index “may sound like good news”, said The Mirror’s money reporter Ruby Flanagan. However, the reason for the fall is “due to higher borrowing costs for buyers”.

The -0.5% monthly fall in February leaves prices 3.7% below their peak in August 2022, 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, said Robert Gardner, Nationwide’s chief economist. “While financial market conditions normalised some time ago, housing market activity has remained subdued.”

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‘Dampening demand for houses’

The fall in house prices has come at a time when “household finances have come under pressure from rising interest rates and high inflation”, which has “outstripped pay increases”, said Joanna Partridge in The Guardian.

Mortgage approvals are also down, “dampening demand for houses”, Sky News business reporter Sarah Taafe-Maguire added. Official data by the Bank of England showed net mortgage approvals “decreased for the fifth month in a row, to 39,600 in January from 40,500 in December”.

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”, Gardner said. 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”.

What next?

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

Economics company Pantheon Macroeconomics told BBC News that people were “holding off buying new homes” because they expected house prices to drop further. And the forecaster believes prices will “fall over the coming months to about 8% below their peak”. Mortgage rates appeared to have “hit a floor for now”, and the real disposable incomes for households would be “squeezed again” in April by the withdrawal of energy bill subsidies by the government.

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