Nationwide Says House Prices Falling

A new build house against a blue sky backdrop
Author: Samuel Beckingham
Updated: Jun 07, 2023
4 minutes read

According to Nationwide, house prices are falling at their fastest pace in nearly 14 years. Their data revealed that prices over the last 12 months since May dropped 3.4%, which is the biggest decrease since July 2009. Despite prices falling, interest rate rises are still expected to hit the housing market.

Many lenders are expecting the Bank of England to increase interest rates again, which is why they have already raised mortgage rates to compensate. Stubbornly high inflation has been a persistent problem, and the housing market is taking the brunt of the hit.

From April to May, house prices deflated 0.1%, which makes the average property worth £260,726. Currently, this makes values 4% below their height in August. As a result, it’s good news for first time buyers, who have been struggling to get deposits together and watched house prices increase plenty in recent years.

The rising interest rates, however, are a double edged sword for first time buyers. Mortgage costs are becoming more unaffordable than ever, especially for anyone looking to get onto the first rung of the property ladder. The Bank of England stated that, for houses, the number of mortgages approved in March was at 48,700, which was a drop of 2,800.

In April, inflation levels dropped to 8.7%, which was much less than expectations had hoped. As such, some economics are under the impression that interest rates may have to rise yet again to 5.5% in order for levels to decrease more quickly. Nationwide preempted this by raising their mortgage interest rates by 0.45%. A year ago, the average two year fixed rate mortgage rate was 3.25%. Now, it’s currently 5.49%.

Banks and building societies have warned homeowners and homebuyers that new fixed rate mortgage deals will most likely be above 5%. As markets are trying to cool inflation, higher interest rates will drive down demand and increase payments. Research in the House of Commons library has shown that remortgaging costs have risen 38% since the end of 2019. More and more households have been struggling since before the pandemic and various political decisions and world events have only made things worse.

With all of these interest rate rises and stubborn inflation, almost 10% of mortgage deals have been removed from the market. Nationwide has predicted that interest rates will stay high for a while, but this doesn’t necessarily mean bad news for the housing industry as a whole. As labour conditions have held up and households have proved resilient in their finances, Nationwide isn’t expecting a sharp decrease in house prices.

Data from HMRC revealed that there’s been a 25% drop in property purchases over the last year, which has decreased to 82,120. Hargreaves Lansdown noted that consumer confidence has been low ever since the mini-budget was announced last year. Property purchasers have been put off by mortgage rate rises – more of which are coming later – which has tapered demand and produced lower prices.