House prices weaken further with 0.8% drop in August: Nationwide

House prices saw a further softening in August, with the annual rate falling to -5.3% from -3.8% in July, the weakest rate since July 2009, the latest Nationwide house price index shows.

The further weaking in prices represents an annual fall of around £14,600 on a typical home.

Prices fell by 0.8% over the month and are now 5.3% below their August 2022 peak.

In the first half of 2023, the number of completed housing transactions was nearly 20% below pre-pandemic (2019) levels and 40% lower than in the first half of 2021 - though the latter reflects the boost to activity from pandemic-related shifts in housing preferences, the stamp duty holiday and low borrowing costs.

Home mover completions (with a mortgage) in the first half of 2023 were 33% lower than 2019 levels, whilst first-time buyer numbers were 25% lower. Buy-to-let purchases involving a mortgage were nearly 30% below pre-pandemic levels. By contrast, cash purchases were actually up 2%.

Robert Gardner, Nationwide's chief economist, 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. For example, mortgage approvals have been around 20% below the 2019 average in recent months and mortgage application data suggests the weakness has been maintained more recently.

“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.

“While activity is likely to remain subdued in the near term, 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 Bank Rate peaks."

Jonathan Hopper, CEO of Garrington Property Finders, commented: “Hopes that this would be a brief or even gentle reset are fading faster than people’s summer tan lines.

“Instead much of the property market is going through an increasingly sharp correction, with sellers enduring the fastest fall in average prices since July 2009.

“Meanwhile many would-be buyers are still being prevented from capitalising on the falling prices by the high cost of mortgages – which means that areas they might previously have chosen to buy in have become less affordable even as prices come down.

“The net effect has been a dramatic slowdown in the number of homes being bought and sold. The number of purchases completed in the first half of 2023 was down nearly a fifth on its pre-pandemic level, and was almost 40% below the 2021 level.

“On the property frontline we’re seeing a rapid unravelling of the post-lockdown boom. With interest rates unlikely to come down any time soon, buyers who rely on a mortgage will continue to see their affordability stretched and this will prompt some to look for smaller homes in cheaper areas.

“At the top end of the market, cash buyers are sensing that now is a good time to strike – and many are coming out of the woodwork to play their increasingly strong hand.

“While all buyers are wary of paying a price today that could be lower tomorrow as the market settles further, this is unquestionably a buyer’s market – and sellers are increasingly willing to accept below asking price offers from committed, proceedable buyers.”

Alex Lyle, director of estate agent Antony Roberts, said: "A combination of the summer holiday season and buyers being more cautious resulted in a quieter August for viewings, which was also seen in the number of market appraisals carried out.

"Having said that, the recent volume of agreed sales has been very reassuring and those properties that have come to market or are getting ready to be launched in September appear to be committed vendors with an understanding of current market conditions.

"Prime addresses, and in particular family houses, continue to attract significant interest and are achieving strong prices. Properties that may be comprised in terms of their location or layout, are taking longer to sell and it is these properties which need to be competitively priced."

Nicky Stevenson, managing director at national estate agent group Fine & Country, added: “Mortgage rates are squeezing buyer affordability, leading to lower asking prices and offers, and softening average house price growth.

“Despite the pressure on budgets, people have got used to the higher rate environment, and many homes are now being priced accordingly to attract interest and offers.

“As we come out of the summer, demand is expected to build again, and many sellers are looking to begin marketing their home in September.

“A steady pipeline of sales, coupled with falling inflation and a strong labour market, should help the property market enjoy a soft landing over the coming months.

“A pause in base rate rises is what is really needed to give the market that extra jolt of energy — and hopefully that will become a reality this side of the new year.”