House prices in the UK have decreased by 0.8% month-on-month in August, Nationwide’s house price index (HPI) has found.

House prices are now 5.3% below the August 2022 peak, with the average price of a residential property now standing at £259,153.

Despite the market remaining quite slow, cash transactions are proving to be more resilient. The first half of 2023 saw completed housing transactions nearly 20% below the pre-pandemic levels and 40% lower than in the first half of 2021.

The relative weakness of mortgage activity is said to be reflecting the affordability pressures of customers as a result of the sharp rise in mortgage rates since last autumn, which has not affected cash buyers.

Nationwide’s chief economist, Robert Gardner, said: “August saw a further softening in the annual rate of house price growth to -5.3%, from -3.8% in July, the weakest rate since July 2009. Prices fell by 0.8% over the month, after taking account of seasonal effects.

“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. For example, mortgage approvals have been around 20% below the 2019 average in recent months and mortgage application data suggests the weakness has been maintained more recently.

“Nevertheless, a relatively soft landing is still achievable, providing broader economic conditions evolve in line with our (and most other forecasters’) expectations."

Personal finance analyst at BestInvest, Alice Haine, added: “With the Bank of England likely to push ahead with its 15th interest rate rise at its meeting this month and the potential for more rate rises to come, the outlook for the property market appears gloomy. Mortgage approvals plunged almost 10% in July with net mortgage lending increasing by just £200 million on the previous month. The weaker lending data will inevitably feed through to house prices, exacerbating the dampening effect high interest rates are already having on the property market.

“While a decline in housing transactions is technically positive news for the Bank of England, as it indicates its main monetary policy tool is having the desired effect of curbing expenditure, there will be no such relief for homeowners looking to sell. Deciding whether to push ahead and risk a lower sale price will depend on how urgently a homeowner needs to move. With more homeowners reticent to sell, lower stock levels mean high-quality houses in good areas can still command their asking price but in a falling market there are no guarantees.

“For buyers, mortgage rates have eased from their July highs with some cuts among major lenders who are starting to compete more aggressively for business. Mortgage wars are a good thing for those hunting for a new deal but despite improving rates and falling inflation, affordability will remain an obstacle for prospective buyers who must satisfy lenders that they can actually meet higher repayment levels.

“With inflation expected to retreat further this month as energy and food prices continue to ease, it appears the squeeze on household budgets may be turning a corner. But with the costs of servicing other debts such as overdrafts, credit cards and personal loans rising sharply in July and the drag on the mortgage market from higher interest rates intensifying, disposable incomes are unlikely to improve in the short term – heaping more downward pressure on property prices.”

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