Property prices falling at fastest rate since 2009 but 'soft landing' is possible

House prices fell at their fastest rate since July 2009 last month, according to Nationwide. 

The lender’s latest House Price Index shows average property values fell 5.3% annually during August to £259,153. 

It is a steeper fall than the 3.8% decline registered in July 2023 and the figure is also down on a monthly basis by 0.8%. 

Robert Gardner, chief economist for Nationwide, said: “The softening is not surprising, given the extent of the rise in borrowing costs in recent months, which has resulted in activity in the housing market running well below pre-pandemic levels.  

“Nevertheless, a relatively soft landing is still achievable, providing broader economic conditions evolve in line with our (and most other forecasters’) expectations. 
“In particular, unemployment is expected to remain low (below 5%) and the vast majority of existing borrowers should be able to weather the impact of higher borrowing costs, given the high proportion on fixed rates, and where affordability testing should ensure that those needing to refinance can afford the higher payments.” 

He suggested 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 interest rate peak. 

Commenting on the figures, Chris Druce, senior research analyst at Knight Frank, said: “The Bank of England’s rate setting decision later this month, and the messaging around it, will be a key moment for the UK housing market.

“If, as believed, we are near the peak of the rate-rising cycle we can expect buyer confidence to improve in the second half of this year, after a challenging period that has seen people’s spending power reduced and activity slow.

“Surety about rates will allow buyers to plan more effectively, although affordability will continue to be stretched and we expect pressure on pricing and transaction volumes to continue through this year and next.

“However, demand should prove more resilient than expected given the shock-absorber effect of strong wage growth, lockdown savings, the availability of longer mortgage terms, flexibility from lenders and the popularity of fixed-rate deals in recent years.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman, added: “Cash buyers are more dominant in the market as house prices continue to be supported by a shortage of stock and fewer, but more serious, buyers as part of a two-tier market.

"Serious sellers are recognising they may not achieve exactly what was originally anticipated but, bearing in mind that four out of five are also buyers, they‘re concentrating on the difference between the two prices rather than headline figures. 

“Those sellers refusing to recognise the new realities and that prices are softening, remain on the market and often have to accept lower than their original valuation in order to eventually achieve that move.”