House prices drop furthest since 1991

House and for sale sign

House prices fell by 1.7% in July, bringing annual house price inflation to its lowest level since the Nationwide Building Society’s records began in 1991.

The figures confirm the view that the UK’s once frothy housing market has now well and truly come off the boil.
The Nationwide house price index shows that property prices in England and Wales fell to a three-year low in July, taking the average price of a house to £169,316 - almost £15,000 lower than the same time last year.
Chief economist at the Nationwide, Fionnuala Earley, puts the fall down to a combination of a lack of mortgages and sellers who are reluctant to accept lower offers. "Estate agents are reporting that up to 40% of transactions are falling through and the average number of sales per surveyor is at its lowest ever level," she says. "The weakening economy and poor housing market sentiment do not suggest that the market will recover quickly."
The high street has already seen customers tightening their belts as a result of soaring food and fuel bills, and and according to pollsters GFK NOP, consumer morale is at a record low. Its consumer confidence index fell by five points in July to -39, the lowst reading since the survey began in 1974. As such, Earley believes that as inflation is well above target and expected to continue to rise this year, the risk of a recession in the UK is now well on the cards.

However, she added that although economic conditions are not looking good, there are some encouraging signs for the housing market. As most analysts predict that the Bank of England will leave interest rates on hold at 5%, this has filtered through to the swaps market, which has allowed the price of fixed-rate mortgages to come down.
"As the cost of mortgages begins to come down, activity in the housing market could be bolstered and confidence could be restored. If oil prices continue to fall the possibility of earlier cuts in interest rates would also be good news for borrowers," she says.
The Nationwide’s study caps a bad week for homeowners. Earlier this week the Bank of England reported that the number of new mortgages approved for house purchases in June was at its lowest level since 1999 - only 36,000 mortgages were approved in the month, down from the 41,000 in May.