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House prices: Biggest fall since the financial crisis

August witnessed a stark 5.3% decline in house prices, equating to a reduction of £14,600 from the previous year’s peak. This marked the most significant annual decrease since the repercussions of the 2009 financial crisis were felt.

Additionally, in just one month, house prices experienced a dip of 0.8%, bringing the average property value to £259,153.

Moreover, in terms of property sales for the first six months of the year, figures remained lacklustre. Sales were almost 20% less than pre-pandemic figures and trailed by 40% compared to the first half of 2021.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “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.”

Nationwide has published its House Price Index for August 2023: August sees further weakness in house prices