UK property prices continue to falter

Property prices fell back again in January according to figures published today by Nationwide, That is now five months in a row, a rarity in the UK housing market.

The drop for the month was 0.6%, leaving prices 3.2% below their August peak, The annual rate of growth fell back to 1.1% from 2.8% in December.

The drop for the month was 0.6%, leaving prices 3.2% below their August peak, The annual rate of growth fell back to 1.1% from 2.8% in December.

Nationwide's figures for January

.

January 2023

January 2022

Monthly change

-0.6%

-0.3%

Annual change

+1.1%

+2.8%

Average price

£258,297

£262,068

The long term perspective

The chart below shows the average UK property prices, as published by Nationwide, 1, 5 and 10 years ago and the percentage capital gain for each period up to 31 January 2023.

.

1 Year

5 Years

10 Years

Average price

£255,556

£211,756

£162,245

Total gain

+1.1%

+22%

+57%

Robert Gardner, chief economist, Nationwide

"There are some encouraging signs that mortgage rates are normalising, but it is too early to tell whether activity in the housing market has started to recover. The fall in house purchase approvals in December reported by the Bank of England largely reflects the sharp decline in mortgage applications following the mini-budget.

"It will be hard for the market to regain much momentum in the near term as economic headwinds are set to remain strong, with real earnings likely to fall further and the labour market widely projected to weaken as the economy shrinks."

Affordability

Affordability - the relationship between house prices and average incomes - will be a constraint on house prices in the near term. The biggest change over the last year has been the rise in the level of repayments as a result of increased mortgage rates.

Pressures on affordability may ease in the medium term if mortgage rates continue to fall, together with strong wage growth, now running at 7% in the private sector.

Affordability is most stretched in London and Southern England where mortgage servicing costs have risen sharply.

High house prices relative to earnings means that raising a deposit remains a major challenge.

 It now takes average earners saving 15% of their income fifteen years to save a 20% deposit. Scotland and the North are the most affordable regions where the equivalent figure is 3.4 years,