Biggest house prices drop in a decade, says Nationwide

An aerial view of an urban street in London

(Image credit: Getty images)

published 1 March 2023

House ownership could be becoming more affordable for many buyers across the country after house prices saw their biggest annual fall since 2012.

That’s according to the latest house price index from Nationwide Building Society, which found the latest UK house prices dropped by 0.5% in February.

It follows a 0.6% drop in January and means that house prices have fallen for six straight months.

What’s more, according to Nationwide in the year to February average house prices have fallen by 1.1%.

It’s the first time that the annual rate has recorded a decline since 2020, while the size of that drop is the largest reported by Nationwide since 2012.

Why house prices are falling

So, why have house prices dropped for six consecutive months?

Robert Gardner, chief economist at Nationwide, points out: “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.”

Essentially, the mini-Budget was so poorly received by the financial markets that it has had an enormous impact on the housing market. The expectation that the Bank of England would have to make large increases to the bank base rate led to mortgage lenders across the board pulling their entire mortgage ranges ‒ often with little to no notice ‒ and replacing them with deals which were set at much higher interest rates.

Understandably, given the general uncertainty around at that point, plenty of would-be homebuyers decided to put their plans on hold.

This is borne out by new data from the Bank of England, which found that the number of approvals for mortgages dropped for the fifth straight month in January.

And because of that lack of demand, home sellers have found it harder to find a buyer for their property, which in some cases means accepting a lower price.

In fact, data from Zoopla out this week found that sellers are currently having to accept a 4.5% discount from the asking price ‒ which in cash terms works out at about £14,100 ‒ in order to complete sales currently.

That’s the biggest gap from the asking price that Zoopla has recorded in the last five years, and works out at around a third of the house price gains seen since the start of the pandemic.

Richard Donnell, executive director at Zoopla, said that vendors were showing “greater realism”, recognising the impact of higher borrowing costs on potential buyers.

He continued: “Many homeowners are sitting on sizable house price gains made over recent years and have more room to be flexible, accepting offers below the asking price.”

What next for house prices?

So should we expect further house price falls in the months ahead?

While the mini-Budget reaction led to big increases in interest rates charged on mortgages, they have since dropped down to lower levels.

Despite this, Gardner notes that mortgage rates remain significantly higher than the lows recorded in 2021, while household finances are under ever greater strain due to the persistently high rate of inflation.

He continued: “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.”

As a result, it seems likely that there will be further house price falls ahead. Myron Jobson, senior personal finance analyst at Interactive Investor, suggests that a “significant psychological shift” is taking place, favouring prospective buyers who have been biding their time in the hope of making the sums add up.

He said: “The recent fall in house prices suggests that we are on the cusp of seeing the sales market handing back purchasing power to buyers.”

That’s in stark contrast to recent years, where the imbalance between housing stock and buyer demand has led to mammoth house price increases.

More on house prices and mortgages

John Fitzsimons has been writing about finance since 2007, and is a former editor of Mortgage Solutions and loveMONEY. Since going freelance in 2016 he has written for publications including The Sunday Times, The Mirror, The Sun, The Daily Mail and Forbes, and is committed to helping readers make more informed decisions about their money.