The latest Nationwide figures have revealed a 0.2% monthly fall in UK house prices, but much of the industry is continuing to see healthy appetite from buyers.

Nationwide’s monthly House price index for July found that UK House Prices, based on owner-occupier property transactions using a mortgage, have fallen by -3.8% since July 2022. This brings the average UK residential property value to £260,828.

The typical price of a property in the UK, according to Nationwide, is now -4.7% lower than it was at its peak in August 2022. One of the biggest factors affecting the market has been rising inflation and interest rates, with the Bank of England’s base rate now set at 5%. Many expect this to be raised further this week.

This has made mortgage rates more expensive, with many two-year and five-year fixed rate deals now above the 6% mark. The effect of this has been to subdue growth in UK house prices.

Robert Gardner, Nationwide’s chief economist, points out in the report that housing affordability is “stretched for those looking to buy a home with a mortgage”. He notes that first-time buyers in particular now need a much higher level of take-home pay to afford mortgage payments and the deposit required.

Will UK house prices stabilise?

Until interest rates begin to come back down – which many analysts believe will happen in the long-term but not imminently – these affordability constraints are expected to continue to impact UK house prices.

However, as Iwona Hovenko, real estate analysis at Bloomberg Intelligence, points out, the current climate is coming off the back of a period of exceptionally high growth, with UK house prices remaining 21% above pre-pandemic levels even after the latest fall.

“The 0.2% UK house price decline in July, according to Nationwide, may still represent a resilient outcome, especially against expectations for a 0.5% fall, given the rapid surge in mortgage rates which may have spooked many prospective homebuyers,” says Hovenko.

“Even the annual price drop of 3.8% – although the worst in 14 years – nevertheless remains somewhat modest against house prices still being 21% above their February 2020 level.”

Hovenko acknowledges that the longer mortgage rates remain at their current high level, the more potential impact this will have on both UK house prices and transactions within the market.

“Such high rates pose a threat to UK housing outlook and our previous expectations for a 5% decline in house prices in 2023.”

Buyers in the driver’s seat

While there is still a strong level of demand for UK residential property which, in some locations, continues to outstrip supply, there is also a shift towards more of a buyer’s market. This can keep the sector moving and keep transaction levels strong, as well as support UK house prices.

According to Nathan Emerson, CEO of Propertymark, its member branches across the UK are continuing to conduct a stable level of valuations on properties to sell.

“Our member agents report the number of valuations for sale conducted per branch remaining steady and a return to normal pace in the market is evident despite ongoing economic turbulence,” says Emerson.

“With a core portion of the country still looking to move home, this is putting buyers in the driver’s seat who are now able to negotiate and secure a property at a reasonable price, playing a part in combatting rises in mortgage rates.”

London luxury homes in high demand

Meanwhile, the London market is seeing more of a shift away from first-time buyers getting onto the property ladder with the help of their parents, towards an uplift in the number of cash buyers and those purchasing within the prime property market. Cash purchases are included in Nationwide’s house price index.

John Ennis, CEO of Chestertons, says: “In London, the property market remained stable throughout July with buyer registrations reaching the same level as in previous months.

“Whilst there were fewer first-time-buyers with support from the Bank of Mum and Dad, we witnessed an increase in cash buyers and higher-valued property sales in excess of £1mn.

“This was further driven by continuously strong demand for larger family homes in London’s leafier suburbs such as Richmond as well as luxury townhouses in areas such as Islington and Kensington.

“Some buyers who are currently registering are optimistic that we will be seeing more favourable interest rates at some point. Their desire to continue the house hunt has therefore remained strong with many hoping to find a property by the autumn.”