Biggest house price fall since the financial crisis – as mortgage rates hit peak

Sarah Coles, head of personal finance at Hargreaves Lansdown, comments on the publication of the Nationwide House Price Index for August 2023, showing biggest house price fall since the financial crisis – as mortgage rates hit peak.

Key points from publication:

• • In August, house prices were down 5.3% from the peak a year earlier (£14,600).
  • It’s the biggest annual drop since aftermath of the financial crisis (July 2009).
  • House prices fell 0.8% in a month.
  • The average house price is £259,153.
  • House sales in the first half of the year were nearly a fifth below pre-pandemic levels and two fifths lower than the first half of 2021.

Sarah Coles says:

“Mortgage rates peaked in August, frightening buyers out of the market, stalling sales, and pushing house prices lower.

“We’ve now seen the biggest fall in house prices since the financial crisis.

“Nationwide measures mortgage approvals, which were hit hard by the hikes in mortgage rates during the summer.

“Inflation was proving surprisingly sticky, so lenders started to price in more rises. Moneyfacts data shows that the average 2-year fixed rate mortgage rose from 5.35% at the beginning of April to a recent peak of 6.85% at the start of August.

“As a result, Bank of England figures show a big drop in mortgage approvals. As buyers hurried out of the market, prices fell.

“However, this isn’t a sign that we’re definitely set for more rapid falls from here.

“It’s worth bearing in mind that last August was the peak of prices, and there are some factors working in the market’s favour.

“Mortgage rates have eased since. They fell through August and September, as inflation dropped and lenders felt more confident that we were reaching the peak of the rate rise cycle.

“The Bank of England’s decision to pause rate hikes has helped this trend, so that the average five-year fix has dropped below 6% and the average two-year fix is below 6.5%.

“We’re not back to April levels, and we may not get there for a while, but we’re moving in the right direction.

“It’s worth noting that when you take mortgages out of the picture, demand is still there.

“Cash purchases are up 2% since the onset of the pandemic.

“The market is still being underpinned by a high employment rate and wages which now out-pace inflation.

“Unfortunately, you can’t take mortgages out of the picture for most buyers, and the impact is stark.

“Transactions by home-movers involving a mortgage were down a third from pre-pandemic levels, and first-time buyers were down a quarter.

“For buyers, in a market like this, your ability to move and afford the property you need will depend to a large degree on the equity you have in your pocket.

“For first-time buyers, raising a deposit is incredibly difficult against a backdrop of rising rents, so it’s even more important to make sure you’re getting every bit of help you can, from asking parents, to considering using a Lifetime ISA if you qualify, and getting a 25% bonus from the government to help you on your way.”

Kindly shared by Hargreaves Lansdown