UK real house prices fall 13.4% from peak

UK house prices have fallen by 13.4% in real terms from their peak, according to a new research. Inflation has concealed the true magnitude of recent declines in UK house prices, with many regions and nations in the UK not seeing an improvement in their housing wealth in real terms compared to the 2008 financial crisis.

Based on an analysis of the Nationwide house price index conducted by London-based estate agent Savills, it has been revealed that although UK house prices have experienced only a slight 2.8% decline in nominal terms since their peak in March 2022, the influence of inflation has resulted in a significant decrease in real terms. When accounting for inflation, the average real house prices have not shown any increase compared to their values in late 2015.

The analysis suggests that buyers who purchased homes after December 2015 may have experienced a real-terms loss in the value of their properties.

In some regions and nations of the UK, house prices have still not recovered to their 2007 levels when adjusting for inflation. These regions include north-west England, Yorkshire and the Humber, West Midlands, as well as Wales, Scotland, and Northern Ireland.

Inflation conceals the true scale of the drop from the record level in March 2022.

Real-terms prices in the north of England have fallen by 27% since their peak in the third quarter of 2007, while Yorkshire and the Humber are down 21%, the East Midlands down 11%, and Wales down 18% over the same period.

Higher inflation, which has prompted the Bank of England to raise its official interest rate, has also increased mortgage rates, reducing demand in the housing market. While lenders have become more competitive with mortgage rates recently, the average five-year fixed-rate mortgage is still significantly higher than it was in October 2021.

The prospect of a "gradual normalization" of Bank of England interest rates in the coming year may alleviate some of the pressures on mortgage affordability. However, it remains uncertain when the housing market will experience a new period of "inflation-plus" house price growth, as this will depend on future interest rate movements.

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