British house prices last month dropped in annual terms for the first time in nearly three years, mortgage lender Nationwide said on Wednesday, adding to signs of a slowdown in the housing market in the face of high inflation and rising borrowing costs.
The 1.1% fall was the first annual drop since June 2020, early in the coronavirus pandemic, when they edged down by 0.1%, Nationwide said. It was the biggest year-on-year drop since November 2012.
Compared with January, prices were down by 0.5% for the sixth month-on-month fall in a row, the longest such run since one beginning in 2007 and ending in 2009, during the global financial crisis.
Economists polled by Reuters had expected prices to fall by 0.9% from a year earlier and by 0.4% in monthly terms. Nationwide said prices were now 3.7% lower than their peak in August last year.
Official interest rates have been on a steep rise for over a year and the mortgage market suffered major disruption in late September and October following former prime minister Liz Truss's mini budget, which pushed up market borrowing costs.
Nationwide chief economist Robert Gardner said the market would struggle to recover in the near term given the risk of a recession, and mortgage payments were well above their average as a share of take-home pay.
"However, conditions should gradually improve if inflation moderates in the coming months as expected, easing pressure on household budgets. Solid gains in nominal incomes together with weak or declining house prices will also support housing affordability, especially if mortgage rates edge lower in the coming months," Gardner said.
Nationwide forecast in December that housing prices would fall by 5% in 2023.
Gabriella Dickens, an economist with consultancy Pantheon Macroeconomics, said she expected house prices would fall to about 8% below last year's peak.
"We have tentatively penciled in a 5% rise in house prices for 2024, however, reflecting our view that the Monetary Policy Committee (of the Bank of England) will start to reduce interest rates next year," she said.
A Reuters poll of analysts published on Tuesday showed British home prices were expected to fall by 2.4% in 2023, less than previously expected as a resilient job market and easing recession fears softened the blow of higher borrowing costs.
The Bank of England (BoE) was due to report on the number of mortgage approvals in January at 09.30 GMT on Wednesday. They sank to their lowest levels since the global financial crisis in December, excluding the very start of the COVID-19 pandemic when there were strict lockdown restrictions in place.