UK house prices down 25% in five years

As the UK economy braced for another interest rate hike this week there were clear signs that nearly two years of rises have taken their toll on the housing market.

The Bank of England is expected to raise interest rates for the 14th time in-a-row, on August 3, from 5% to 5.25%. In December 2021, the interest rate was a mere 0.1 %.

Biggest fall since 2009.

Mortgage lender Nationwide says UK housing prices fell by the most since 2009 in the 12 months to July and blames rising interest rates. 

Compared with July last year, the average house price was down 3.8% after a 3.5% annual fall in June, Nationwide said.

Other gauges of the housing market point to weak activity caused by rising interest rates, which have pushed mortgage rates above 6% for home buyers and existing mortgagors looking to refinance.

First time buyers brace yourselves. 

Robert Gardner, the chief economist for Nationwide, said the typical first-time buyer with a deposit of 20% would see mortgage payments at current rates account for 43% of their take-home pay – up from 32% a year ago.

“Annual house price growth edged down to -3.8% in July. This was the weakest outturn since July 2009, although it is only modestly lower than the -3.5% recorded last month. There was a slight fall of 0.2% over the month, after taking account of seasonal effects. As a result, the price of a typical home is now 4.5% below the August 2022 peak,” says Gardner,  

“Investors’ views about the likely path of UK interest rates have been volatile in recent months, with the projected Bank Rate peak fluctuating between 5% in mid-May and 6.5% in early July . There has been a slight tempering of expectations in recent weeks but longer-term interest rates, which underpin mortgage pricing, remain elevated.” 

The Resolution Foundation – an independent think-tank focused on improving the living standards of those on low-to-middle incomes. – believes that if interest rates stay high UK house prices could fall by around 25% in the next five years.

 Property website Zoopla has forecast prices to fall by 5% over 2023, as it found that demand for homes had fallen by 18% in the two months to July.