House prices have suffered their largest annual drop in over a decade after market volatility spooked homebuyers.
Figures from Nationwide showed house prices were down 3.1% year-on-year in March, the largest annual decline since July 2009, with all regions witnessing a slowing in price growth in the first quarter.
The average house price in March was £257,122, down from £257,406 in February, and the seventh consecutive fall, leaving prices 4.6% below their August peak. Nationwide said nine out of its 13 regions recorded annual house price declines in the first quarter, with Scotland the weakest performing region.
Robert Gardner, chief economist at Nationwide, said: “The housing market reached a turning point last year as a result of the financial market turbulence which followed the mini-Budget. Since then, activity has remained subdued.”
Gardner said the number of mortgages approved for house purchase remained weak at 43,500 cases in February, almost 40% below the level a year ago.
He commented: “It will be hard for the market to regain much momentum in the near term since consumer confidence remains weak and household budgets remain under pressure from high inflation. Housing affordability also remains stretched, where mortgage rates remain well above the lows prevailing at this point last year.”
Jonathan Hopper, CEO of Garrington Property Finders, said: “While the direction of travel is unmistakable, price falls in many areas have been gradual rather than dramatic, especially when compared to the dizzying and unsustainable surge in prices seen during the post-pandemic boom. Above all, this has become a buyer’s market. With the number of sales well down on what it should be for this time of year, sellers and their estate agents are chasing buyers.
“With the mortgage market beginning to settle, falling prices may even provide a window of opportunity for first-time buyers previously frozen out by rising interest rates. For now, the spring bounce remains an aspiration rather than a reality, and a further softening of prices looks inevitable until there is greater comfort and clarity that inflation is falling and interest rate rises have peaked.”
Carl Howard, CEO of Andrews estate agents, agreed that uncertainty in the financial markets will continue to impact the property market.
“For those looking to get on the property ladder, a further decline in property prices could help to bolster demand by chivvying first-time buyers into action before the market rights itself again.
“However, there are still some large clouds overhead. This month’s surprise increase in inflation coupled with an eleventh consecutive rise in interest rates will make it tough to keep a lid on the cost of borrowing. Meanwhile, rocketing rent prices, fuelled by a lack of supply, is making it even more challenging for renters trying to scrape together a deposit.”
Howard said new regulations are also deterring prospective landlords and forcing current ones to sell up, with Zoopla data showing the number of rental properties has dropped by a third since autumn 2021.
“While sentiment is improving, many remain cautious. The next six months will determine whether or not full confidence is restored to the housing market,” he added.
However, Nicky Stevenson, managing director at Fine & Country, said the drop in house prices could act as motivation: “March’s fall in house prices is not unexpected, but all signs point to this motivating buyers as the housing market starts gearing up for the traditionally busy Easter period.
“There is no reason to think this is a blip either, as despite the latest base rate rise from the Bank of England, mortgage lenders are still cutting their rates — and this will only provide further encouragement that now is a good time to move home.
“Sellers are being realistic about the level they market their home at, and these lower prices are in turn incentivising buyers to start viewings. While one of the biggest drivers behind price growth in the last two years has been the limited supply of homes, stock levels are increasing, which is providing more space for price negotiations.”
