UK house prices in longest slump since 2008, Nationwide says

UK house prices fell for a fifth month in January, the longest string of declines since the financial crisis more than a decade ago, Nationwide Building Society said on Wednesday.

The mortgage lender said average home costs fell 0.6 per cent this month and by a revised 0.3 per cent in December, steeper than its previous estimate. The monthly decline was also more than economists had expected.

The declines mark the longest losing streak since 2008 and follows a jump in mortgage rates and the tightest cost-of-living crisis in a generation. Those factors are squeezing the spending power of home buyers, putting the cost of property out of reach to more people.

“The overall affordability situation looks set to remain challenging in the near term,” said Robert Gardner, Nationwide’s chief economist. “There are some encouraging signs that mortgage rates are normalising, but it is too early to tell whether activity in the housing market has started to recover.”

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Prices remain 1.1 per cent higher than a year ago, reflecting pandemic stimulus programmes including a tax break on home purchases. That was the weakest annual growth since June 2020, just after the first lockdown. It is a sharp slowdown from the double-digit house price growth enjoyed last summer.

The average price dropped to £258,297 (€237,407) as the building society warned the housing market is unlikely to pick up in the coming months. The Bank of England is adding to that pain by raising interest rates, with a 10th consecutive hike due on Thursday.

“All regions have seen a deterioration in affordability compared to 2021, with the cost of servicing the typical mortgage as a share of take-home pay now at or above the long-run average in all regions,” Gardner said.

The average two-year fixed rate home loan jumped to a 14-year high of 6.65 per cent in October after the mortgage market was rattled by budget plans set out by Liz Truss during her brief spell as prime minister. Mortgage rates have come down from their peak to well below 6 per cent, but home buyers and households renewing their deals are still facing painfully high monthly repayments.

The Bank of England warned in December that 4 million owner occupiers will be exposed to higher mortgage costs over the next 12 months. Those renewing their deals will face average monthly repayments jumping 250 to 1,000, the central bank said.

Despite the slump in latest prices, Nationwide warned that affordability pressures are still “particularly acute in London and the south of England. The capital continues to have the highest house price to earnings ratio at 9.2, taking first-time homebuyers with a typical wage 15 years to save a 20 per cent deposit”.

“Saving for a deposit is proving a struggle for many given the rising cost of living, especially those in the private rented sector where rents have been rising at their strongest pace on record,” Gardner said. – Bloomberg