Nationwide: House prices continue to slide as mortgage rates rise

House prices fell by 3.5% annually in June according to Nationwide's latest house price index. This takes the average UK house price to £262,239.

While we have already been seeing house prices fall, borrowing costs have added pressure to the market and a  sharp increase in borrowing costs is likely to exert a “significant drag” on housing market activity, says Nationwide.

Earlier this week, Zoopla also reported a 5% fall in askign prices. 

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House prices have fallen in 2023 as rising interest rates increase mortgage rates, putting first-time buyers off and adding pressure to mortgage holders already struggling with high inflation.   

Two-year fixed mortgage rates are sitting at about 6% as lenders hike their rates and pull deals following the Bank of England’s latest base rate hike, which took interest rates to 5%.  This is adding hundreds of pounds onto repayments. 

The 3.5% fall in house prices follows a 3.4% annual decline in May.

Prices were fairly stable over the month, rising by a modest 0.1%, reversing a 0.1% month-on-month decline in May.

How will interest rates impact the future property market?

Robert Gardner, Nationwide’s chief economist, said: “Longer term interest rates, which underpin mortgage pricing, have increased sharply in recent months, in response to data indicating that underlying inflation in the UK economy is not moderating as fast as expected.

“This has prompted investors to expect the Bank of England to increase its policy rate further and for it to remain higher for longer.

“Longer term borrowing costs have risen to levels similar to those prevailing in the wake of the mini-budget last year, but this has yet to have the same negative impact on sentiment.”

That said, data from HMRC showed UK residential transactions in May were down 27% compared to the same period last year, and down 3% from the month before. 

“Whilst the sting of inflation should hopefully soon start to recede, mounting mortgage rates persist in curtailing transactions, as climbing the property ladder or transitioning homes becomes progressively more challenging,” said Karen Noye, mortgage expert at Quilter. 

“The Bank of England's decision to lift its base rate to 5% in June, we can only compound problems. Lenders are increasing their mortgage rates, which are expected to soar even more should the Bank tighten monetary policy again.”