House prices have fallen an average of 3.8 per cent across the UK in the past year according to the Nationwide.

This is the worst figure since July 2009, although it is only modestly lower than the 3.5 per cent fall recorded last month. 

There was a slight fall of 0.2 per cent over the past month, after taking account of seasonal effects. 

As a result, the price of a typical home is now 4.5 per cent below the August 2022 peak.

Robert Gardner, chief economist at Nationwide, says: “A prospective buyer, earning the average wage and looking to buy the typical first-time buyer property with a 20 per cent deposit, would see monthly mortgage payments account for 43 per cent of their take home pay – assuming a 6.0 per cent mortgage rate.

“This is up from 32 per cent a year ago and well above the long-run average of 29 per cent.”

“This challenging affordability picture helps to explain why housing market activity has been subdued in recent months. 

“There were 86,000 completed housing transactions in June, 15 per cent below the levels prevailing the same time last year and around 10 per cent below pre-pandemic levels. 

“More timely mortgage approval data showed a slight increase in activity in June, though most of these applications will pre-date the more recent rise in longer term interest rates. Moreover, activity is still circa per cent below 2019 levels.

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

“In particular, unemployment is expected to remain low (below 5.0 per cent) and the vast majority of existing borrowers should be able to weather the impact of higher borrowing costs, given the high proportion on fixed rates, and where affordability testing should ensure that those needing to refinance can afford the higher payments.

“While activity is likely to remain subdued in the near term, healthy rates of nominal income growth, together with modestly lower house prices, should help to improve housing affordability over time, especially if mortgage rates moderate once Bank Rate peaks.”

The Bank of England is expected to raise interest rates again tomorrow from 5.0 per cent to at least 5.25 per cent. It would be 14th rise in borrowing costs since December 2021.