Annual house price growth turns negative to weakest level since 2012: Nationwide

Annual house price growth slipped into negative territory for the first time since June 2020, with prices down 1.1% in February compared with the same month last year, according to the latest Nationwide house price index.

February saw a further monthly price fall of 0.5% – the sixth in a row – which leaves prices 3.7% below their August 2022 peak.

Robert Gardner, Nationwide's chief economist, said: “The recent run of weak house price data began with the financial market turbulence in response to the mini-Budget at the end of September last year. While financial market conditions normalised some time ago, housing market activity has remained subdued.

“This likely reflects the lingering impact on confidence as well as the cumulative impact of the financial pressures that have been weighing on households for some time. Indeed, inflation has continued to outpace wage growth and mortgage rates remain significantly higher than the lows recorded in 2021. Even though consumer sentiment has improved in recent months, it is still languishing at levels prevailing during the depths of the financial crisis.

“It will be hard for the market to regain much momentum in the near term since economic headwinds look set to remain relatively strong, with the labour market widely expected to weaken as the economy shrinks in the quarters ahead, while mortgage rates remain well above the lows prevailing in 2021.

“Indeed, despite the modest fall in house prices, for a prospective first-time buyer earning the average income looking to buy the typical home, mortgage payments remain well above the long run average as a share of take-home pay. In addition, deposit requirements remain prohibitively high for many and saving for a deposit remains a struggle given the rising cost of living, especially for those in the private rented sector, where rents have been rising strongly.

“However, conditions should gradually improve if inflation moderates in the coming months as expected, easing pressure on household budgets. Solid gains in nominal incomes together with weak or declining house prices will also support housing affordability, especially if mortgage rates edge lower in the coming months.”

Nicky Stevenson, managing director at Fine & Country, commented: “This fall in house prices moves the spotlight onto spring, which will be a critical bellwether for how the housing market is performing during this period of high inflation and economic insecurity.

“A slowdown in prices in February is not unsurprising given normal seasonal trends, but spring is traditionally busy and we are seeing an increasing number of buyers are being enticed back to the market.

“Data released earlier this week showed the average house price has risen by 20% since the start of 2020, representing a £50,000 rise — an astonishing increase compared to the 7.8% increase in the three years prior.

“A slowdown in price growth is therefore playing a part in drawing prospective buyers back to the market, as they are keen to try to secure a good deal on their next home. An improving and increasingly competitive mortgage market is equally giving people more confidence and is already helping with affordability.”

Iain McKenzie, CEO of The Guild of Property Professionals, added: “The slowdown in house price growth continues, and though these are some of the worst growth figures in recent years, the readjustment is hardly the crash that some thought was coming.

“Prospective buyers will see this as welcome news, as the last couple of years have seen growth that has priced many out of the market.

“Estate agents are seeing more properties being put up for sale, and with this increased stock comes a fall in prices, as buyers are able to negotiate harder.

“We are forecasting an overall decrease of around 8% this year, but it's worth noting that even a fall of this size would only put house prices at 2021 levels.

“House prices will remain buoyant so long as the demand is still there. While most first time buyers are still eager to get on the ladder and escape high rents, the cost-of-living crisis may be pushing them to sit on their deposit for a while longer.

“It is crucial for inflation to be brought under control if we hope to see confidence restored, but sellers should expect that some buyers will be pushing for some flexibility on the asking price.”