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Antony Antoniou – Luxury Property Expert

UK Housing Market Faces Challenges as House Prices Experience Steepest Decline Since 2009

UK Housing Market Faces Challenges as House Prices Experience Steepest Decline Since 2009


The UK housing market is grappling with a significant setback as house prices witness a sharp decline, reminiscent of the aftermath of the financial crisis in 2009. Nationwide, a prominent building society, has sounded the alarm, warning that rising borrowing costs are likely to impede the market’s growth. With lenders increasing mortgage rates and recent data revealing a 3.5% drop in house prices compared to the previous year, it is clear that challenges lie ahead for prospective homeowners. In this blog post, we explore the factors behind this decline and discuss the potential impact on the housing market.

Rising Borrowing Costs and Falling House Prices:

Nationwide’s latest figures confirm the worrisome trend of falling house prices. Although June’s numbers remained relatively stable compared to May, the decline in prices marks the most rapid rate since 2009. This downturn is primarily attributed to the soaring borrowing costs faced by homebuyers. As lenders continue to raise mortgage rates, even first-time buyers with average incomes find themselves allocating a larger portion of their take-home pay towards mortgage payments, significantly surpassing the long-term average.

Persistent Affordability Challenges:

Nationwide highlights the persistently high house prices relative to earnings, presenting a substantial barrier for those hoping to enter the market. The report underscores that a 10% deposit for a typical first-time buyer property equates to approximately 55% of gross annual income. Although this figure has decreased slightly from the peak of 59% in late 2022, it still exceeds pre-financial crisis levels in 2007/2008. Deposit requirements of this magnitude continue to deter potential homebuyers, hampering market activity.

Impact of the Bank of England’s Base Rate Increase:

The recent hike in the Bank of England’s base rate has exacerbated the challenges in the housing market. Following worse-than-expected inflation data over the past five weeks, the Bank rate surged from 4.5% to 5%. Consequently, most lenders raised their mortgage rates for two and five-year fixed deals, further burdening prospective buyers. The ripple effect of these actions is anticipated to dampen housing market activity and intensify the strain on aspiring homeowners.

Regional Variations in House Price Growth:

Nationwide’s report reveals a broad slowdown in house price growth across all English regions. London experienced a significant year-on-year decline of 4.3%, while the Outer Metropolitan region witnessed a 2.9% fall. Similarly, Northern England saw prices drop by 2.7%, and Southern England faced a decline of 3.8%. The exception to this trend was Northern Ireland, which observed a modest increase in house prices.

Hope for a “Relatively Soft Landing”:

Despite the gloomy outlook, Nationwide suggests that a “relatively soft landing” is still possible for the UK housing market. The building society maintains that labor market conditions are expected to remain robust, with a projected unemployment rate below 5% and solid income growth. Additionally, as bank rates are likely to reach their peak in the coming quarters, longer-term interest rates should start to recede. Nationwide believes that a combination of steady income growth and moderate price declines could enhance affordability over time, particularly if mortgage rates stabilize.


The UK housing market finds itself grappling with significant challenges as house prices decline at the fastest rate since 2009. Rising borrowing costs and persistent affordability issues continue to hinder prospective homeowners, while the recent increase in the Bank of England’s base rate further compounds the problem. Regional variations in house price growth add complexity to the situation, with London experiencing a substantial decline. Despite these obstacles, Nationwide remains cautiously optimistic, emphasising the potential for a “relatively soft landing” as income growth remains solid and mortgage rates may eventually moderate. Time will tell how the market adapts and whether these measures will be sufficient to restore stability and confidence in the housing sector.

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