UK house prices dropped by 3.8% in July 2023, the biggest annual decline since July 2009, according to the latest monthly report from Nationwide.
The price of a typical home now stands at £260,828, a fall of 0.2% compared to the previous month and 4.5% below the August 2022 peak.
Housing affordability “remains stretched” despite the decline in prices, the building society said.
Robert Gardner, chief economist at Nationwide, said that a first-time buyer on an average wage, who had saved a 20% deposit, would see monthly mortgage payments account for 43% of their take-home pay (assuming a 6% mortgage rate). This is up from 32% a year ago.
Mortgage rates have increased following interest rate rises by the Bank of England aimed at bringing down the UK’s persistently high inflation.
Saving up enough for a deposit also presents a “high hurdle” to those looking to get on the property ladder.
“This challenging affordability picture helps to explain why housing market activity has been subdued in recent months,” Gardner said. “There were 86,000 completed housing transactions in June, 15% below the levels prevailing the same time last year and around 10% below pre-pandemic levels.”
Gardner added, however, that a “relatively soft landing” for the housing market is still possible if broader economic conditions evolve in line with expectations, with unemployment remaining low and the majority of existing borrowers withstanding the impact of higher borrowing costs.
“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.”
