According to Nationwide Building Society, UK house prices experienced their most significant annual decline in 14 years, dropping by 5.3% in August compared to the same month the previous year. This sharp decrease, the largest since July 2009 during the financial crisis, is primarily attributed to surging mortgage costs, discouraging potential homebuyers. On average, house prices have fallen by over £14,500 in the past year, and mortgage approvals have declined by 20% compared to pre-pandemic levels.

In August alone, prices fell by 0.8% compared to July, pushing the typical UK home price down to £259,153. Robert Gardner, Nationwide’s chief economist, noted that this downturn is unsurprising, given the substantial increase in borrowing costs in recent months, causing housing market activity to remain well below pre-pandemic levels.

Mortgage rates have risen significantly in response to the Bank of England, which has raised interest rates 14 times since December 2021, reaching 5.25%. Nationwide also reported a 20% decrease in completed house sales in the first half of the year compared to 2019 and a staggering 40% drop compared to the booming market of 2021, partly driven by factors like low interest rates and a government-imposed stamp duty holiday.

While cash purchases have remained robust, mortgage-dependent completions have dwindled. Home mover completions with mortgages in the first half of 2023 were 33% lower than 2019 levels, while first-time buyer numbers saw a 25% decline. In contrast, cash purchases actually increased by 2%. This decline in mortgage activity reflects mounting affordability challenges stemming from the sharp rise in mortgage rates since the previous autumn.

A recent report by property portal Zoopla predicts that the number of homes sold in the UK in 2023 will plummet to the lowest level in over a decade, largely due to the soaring mortgage costs deterring potential buyers. Completed house sales are expected to drop by 21% year-on-year, reaching approximately 1 million, the lowest level since 2012.

Tomer Aboody, a director at property lender MT Finance, called for the Bank of England to consider postponing the next rate hike to provide some breathing space for the market to adjust, particularly as inflation shows some signs of improvement.