The building society attributed the drop to high mortgage interest rates, posing challenges for potential house-buyers. Inflation and uncertainty over rates set by the Bank of England have contributed to mortgage costs reaching their highest level in 15 years.
The average UK home price now stands at £260,828, approximately £13,000 below the peak observed in August last year. This drop in prices might be welcomed by first-time buyers, as house prices have been climbing in recent years, including during the pandemic. However, despite the July decline, housing affordability remains strained due to higher mortgage rates.
Nationwide's chief economist, Robert Gardner, noted that a first-time buyer with an average wage, who had saved a 20% deposit, would now see mortgage payments account for 43% of their take-home pay at a mortgage rate of 6%. Only a year ago, this figure would have been just over a third of their take-home wage.
Recent figures indicate that mortgage rates continue to rise, with a typical two-year fixed mortgage rate reaching 6.85%, and a five-year fixed rate mortgage reaching 6.37%.
As people grapple with rising mortgage costs, the housing market has been subdued, with completed housing transactions falling from over 100,000 last year to 86,000 in June.
The Bank of England is expected to raise interest rates to at least 5.25% from the current 5% in an effort to combat stubbornly high inflation. This would mark the 14th increase in borrowing costs since December 2021.
Mark Harris, chief executive of mortgage broker SPF Private Clients, highlighted that although some lenders have reduced fixed-rate mortgage pricing due to better-than-expected inflation news, the anticipated interest rate hike indicates that rising mortgage costs remain a concern.
Looking ahead, Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, predicts that house prices may need to decline by approximately 8% from their peak to restore a balance between supply and demand in the housing market.
