House prices in the UK continued to fall in January, sliding for the fifth month in a row, according to Nationwide, pushing the average cost of a home 3.2% below the peak seen last August.
The cost of a home dropped by 0.6% in the first month of the year compared with December 2022, according to the building society’s monthly survey.
Annual house price growth also slowed at the start of the year to 1.1%, down from 2.8% in December. This is the lowest growth since June 2020, when the housing market reopened after being frozen during the early months of the Covid pandemic.
The average price of a home slid to £258,297 in January, a fall of almost £4,000 from a month earlier, when the average property price was £262,068.
Nationwide said it was too early to tell whether housing market activity had started to recover, as mortgage rates offered by lenders are returning to normal after they soared following Liz Truss and Kwasi Kwarteng’s disastrous mini-budget last September.
Demand for mortgages also tumbled to its lowest level since the 2020 Covid lockdown in December, according to figures from the Bank of England, which found the number of home loan approvals continued to drop in December.
Robert Gardiner, Nationwide’s chief economist, said the gloomy economic outlook was likely to continue to have an impact on the housing market and prospective buyers.
“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,” he said.
Nationwide found that prospective house buyers were facing a bigger challenge to afford property, as a result of the increase in mortgage rates.
Mortgage rates have been falling marginally in recent weeks, although the Bank of England is expected to raise interest rates further on Thursday, in what would be the 10th rise in succession.
Policymakers are expected to increase the central bank’s base rate to 4%, which would be the highest level since the 2008 financial crisis.
House buyers have struggled with affordability in all regions of the UK in recent months, compared with 2021, Nationwide found, as higher mortgage rates have pushed up the cost of servicing a typical mortgage.
Nationwide found particularly acute affordability pressures in London and the south of England, while mortgage payments as a share of take-home pay reached their highest level in over a decade in Scotland and the north of England, even though they continue to be the most affordable regions for property.
Meanwhile, the rising cost of renting a home, which has been increasing at the strongest pace since records began in 2005, is also making it difficult renters to save money for a house deposit.
