House prices fell sharply across the UK during July

House prices in the United Kingdom suffered their fastest annual fall for 14 years in July, newly published figures have revealed.

Data from the Nationwide Building Society shows that in July, prices came down by 3. 8 percent, which is the biggest reduction since July 2009, when the British economy was still absorbing the full impact of the financial crash less than 12 months earlier.

At the same time, mortgage costs in July were at their highest level for 15 years, so despite prices coming down after years of having gone up offering hope to potential buyers looking to get on the housing ladder, conditions remain challenging.

Robert Gardner, chief economist at Nationwide, said a first-time buyer on an average wage, who had put down a deposit of 20 percent, would have 43 percent of their take-home pay eaten up by mortgage repayments, as opposed to a figure of around on-third just a year ago.

The average house price in the UK is now 260,828 pounds ($333,045), which is around 13,000 pounds lower than the peak of August 2022, and in June 2023 there were 86,000 completed housing transactions. This is 15 percent lower than a year before, and 10 percent lower than pre-pandemic levels.

"This challenging affordability picture helps to explain why housing market activity has been subdued in recent months," Gardner added.

In the short-term, the picture is unlikely to become any more positive. Although data published by the Bank of England earlier this week showed a rise in mortgage approvals in June, the central bank is expected to raise interest rates from 5 percent to 5.25 percent later this week, which would be a 14th increase in borrowing costs since December 2021.

An improvement in the UK's inflation situation, however, does offer longer-term hope, with the next inflation rate data due to be published on Aug 16.

"A few lenders, including HSBC, Barclays, and Nationwide, have reduced their fixed-rate mortgage pricing on the back of better-than-expected inflation news," Mark Harris, chief executive of mortgage broker SPF Private Clients, told the BBC, and on Wednesday Sky News reported that NatWest, Halifax, and Virgin Money would also be making cuts with immediate effect.

Nicola Schutrups, managing director of mortgage broker The Mortgage Hut, told broadcaster LBC that further price falls remained likely for the rest of the year "but if inflation continues to come down and the jobs market remains strong, there's still a chance for a soft landing".

There was also cautious optimism from Iain McKenzie, CEO of the Guild of Property Professionals, who said the inflation situation offered "some light at the end of the tunnel, and there is still a good chance that the year will be softer on the industry than was previously forecast".