UK house prices fall by most since 2012, mortgage approvals drop

British house prices last month dropped by the most in more than 10 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 biggest year-on-year drop since November 2012 and also the first annual decrease since June 2020, early in the coronavirus pandemic, when prices edged down by 0.1%, Nationwide said.

Separate Bank of England data showed British lenders approved the lowest number of mortgages in January since 2009, excluding a slump at the start of the COVID-19 pandemic.

Analysts in a Reuters poll published on Tuesday expect house prices to fall by 2.4% in 2023, less than previously as a resilient job market and easing recession fears soften the blow of higher borrowing costs.

Nationwide said that 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.

UK house prices fall for sixth time in a row in month-on-month terms

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," Gardner said.

"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."

Nationwide forecast in December that house prices would fall 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 pencilled 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.

Tuesday's Bank of England data showed a jump in consumer lending, which rose by a net 1.6 billion pounds ($1.9 billion) on the month, double the increase forecast in a Reuters poll.

Lending was 7.5% higher than a year earlier, the biggest increase in three years, though this growth rate is not adjusted for consumer price inflation of more than 10%.

($1 = 0.8286 pounds)

(Graphic by Sumanta Sen; editing by Raissa Kasolowsky and John Stonestreet)