House Prices Down 13.4% from March 2022 Peak
According to Savills’ analysis of the most recent Nationwide house price index, UK property prices have fallen by 13.4% in real terms.
As reported in the Financial Times, the decline sharply contrasts with the 2.8% drop in nominal terms.
These figures were compared to the March 2022 peaks.
According to Savills, when house prices are adjusted for inflation, the average valuation is the same as in late 2015.
Research has found many regions across the country are experiencing similar property values as in 2008 – right before the financial crisis.
However, for those looking at becoming a buy-to-let investor, the market seems primed for investment.
These figures suggest properties are undervalued – for now – and bargains exist across the country, particularly in the North West.
What Did Savills Say About the UK House Price Drop?
Savills’ Lucian Cooke had the following to say:
“Because of high inflation, the adjustment in the average price of a UK home has been much more significant in real terms.”
The estate agents’ analysis suggests house prices have not reached 2007 levels after the inflation adjustment.
For instance, the North West, West Midlands, Yorkshire and the Humber, Wales, Scotland and Northern Ireland are below their 2008 peaks, according to the Savills figures in the Financial Times.
In addition, real-terms figures in northern England have fallen by 27% since 2007. Meanwhile, Yorkshire and the Humber property valuations fell by 21%.
Lucian Cook says that homeowners probably did not feel the loss due to nominal values increasing during that period.
Learn more about UK house price growth by year in our updated 2023 guide.
What Factors Have Affected House Prices in the UK?
The most significant factors influencing UK house prices are inflation and interest rate rises.
As the above analysis shows, inflation has chipped away at property values. Consumer price inflation was above 10% until March 2023. However, in August, the figures fell to 6.7%.
The Bank of England raised interest rates from the historically low 0.1% to 5.25% to curb inflation. As such, borrowing for mortgages became harder, impacting price growth in the housing market.
However, Lucian Cook expects interest rates to normalise from next year, which should breathe life into the housing market again.
While property investors wait for the market to correct itself, the drop in inflation and the halt of interest rate rises suggest the end is in sight.
While people can only predict whether interest rates will rise again, many experts expect property prices to grow in 2025 and beyond. In addition, Knight Frank suggests that rents will increase by 22% over the next five years.
As such, savvy investors may want to get into the market now to allow for greater potential capital appreciation on currently undervalued properties.