UK home prices dropped 5.3 percent in August as compared to the same time this year, making it the largest annual decline in 14 years, as per the Nationwide Building Society.

The lender stated that the decline, which was the largest ever since the world economy was at the bottom of financial turmoil, was caused by the rising mortgage rates, which are deterring prospective buyers. The median house price is higher than PS14,500 less than they were one year ago, and mortgage approvals have dropped by five percent when compared to the pre-pandemic level.

‘Bank of Family’ to aid record numbers of UK home purchases this year. Read more.

Prices dropped 0.8 percent in August, in comparison to July, and dragged down the typical cost of a UK home to PS259 153.

“The softening is not surprising given the extent of the rise in borrowing costs in recent months, which has resulted in activity in the housing market running well below pre-pandemic levels,” said Robert Gardner, the chief economist at Nationwide.

The mortgage rates have gone up sharply in recent months in response to the Bank of England, which has increased interest rates by 14 times in the last 12 months, between 0.1 percent to 5.25 percent.

Nationwide revealed that the number of successful houses sold was down by 20 percent in the first quarter of the year when compared to the year before, and around 40% lower than 2021, the year when the UK witnessed a house sales explosion due to factors like low-interest rates as well as the introduction of an exemption from stamp duty by the government.

Although the percentage of those purchasing cash-based products has remained high, the amount of people who have to get a mortgage has dipped.

“Home mover completions with a mortgage in the first half of 2023 were 33% lower than 2019 levels, while first-time buyer numbers were about 25% lower,” Gardner stated. “By contrast cash purchases were increasing by 2 percent. The weakening of mortgage purchases is a result of growing costs of affordability as a result of the dramatic increase in mortgage rates that occurred from last fall.”

This week, a study by the property website Zoopla forecasted the amount of UK homes sold this year would drop down to its lowest levels for more than ten years, and the increasing costs of mortgages put off buyers.

The number of houses sold at the time of completion is predicted to drop 21% year-on-year to around 1 million by 2023, which is the lowest rate since 2012.

“Constant interest rate rises are making affordability difficult for buyers who are trying to move, with many having little option but to wait until rates settle,” said Tomer Aboody, a director of the property lending company MT Finance. “With some better news on inflation recently, it would be useful if the Bank of England postponed the next rate rise, giving the market some breathing space to adjust.”