Press release

1 Aug 2023 London, GB

House prices drifted lower in July – EY ITEM Club comments

Nationwide’s measure of house prices fell in July. But the 0.2% month-on-month decline was small. Average values are now down 4.5% from their peak last summer, eroding only a small part of the near 25% rise between the start of 2020 and mid-2022.

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James White
James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

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  • Nationwide’s measure of house prices fell in July. But the 0.2% month-on-month decline was small. Average values are now down 4.5% from their peak last summer, eroding only a small part of the near 25% rise between the start of 2020 and mid-2022.
  • The EY ITEM Club thinks that cracks in the resilience of house prices will grow. Mortgage rates have started falling from their recent highs. But they are likely to remain above where they were just a couple of months ago, particularly if, as expected, the Bank of England raises interest rates again later this week.
  • But a serious house price correction is still unlikely. Average mortgage rates have risen only modestly so far. Meanwhile, the EY ITEM Club thinks that relatively healthy household finances, strong growth in cash pay, low unemployment and forbearance by lenders should limit how far house prices fall, to around 10% from peak to trough.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “Monthly movements in Nationwide’s measure of house prices continued to hover around zero in July. But a 0.2% month-on-month fall was weaker than June’s performance, when prices rose 0.1%. The big picture is that average values are down from the peak last summer. But following a near 25% rise between January 2020 and mid-2022, the 4.5% decline since last August is relatively modest.

“The EY ITEM Club thinks values are likely to drift lower. Although mortgage rates have started falling from their recent highs, they are still well above where they were just a couple of months ago. And if, as is widely expected, the Bank of England raises interest rates again later this week, scope for the cost of home loans to fall further will be squeezed.

“But a serious correction in prices should be avoided. The dominance of fixed-rate mortgages is slowing the pace at which higher official interest rates are feeding into higher mortgage costs for the average household. As of June, the average interest rate on a UK mortgage was 2.93%, up from 2.12% 12 months earlier. In comparison, over the same period, the Bank of England policy rate saw a far larger increase from 1.25% to 5%.

“Meanwhile, the financial position of UK households in aggregate is unusually healthy, reflecting the deleveraging and high savings rates of recent years. Mortgages are disproportionately held by better-off households, a group which also holds most of the sizeable unplanned savings built up during the pandemic. The recent decline in house prices, alongside strong growth in cash pay, means house prices relative to earnings have fallen. And the compact agreed between the Government and lenders in June should promote more forbearance on the part of banks and building societies. These factors should support demand and reduce the extent of forced selling, limiting how much further house prices fall.”