British home prices fell further last month as borrowing costs held back demand, one of the largest mortgage lenders said, although the rate of decline showed a chance that the market could yet avoid a hard landing.

The Nationwide Building Society said prices fell 3.8% in its July survey from a year ago, quicker than a 3.5% drop in the previous month. While economists expected a slightly larger decline of 4%, it was the third straight month that prices had fallen at their fastest pace since the global financial crisis
in 2009.

The first hard data about July home prices indicate the 13 interest-rate increases from the Bank of England since the end of 2021 have strained consumer’s ability to pay for properties. Values based on Nationwide’s data have fallen about 4.5% since they peaked in August and now average £260,828 ($334,000).

Still, prices have so far avoided the collapse that appeared possible last autumn, when then-Prime Minister Liz Truss’s ill-fated budget sent borrowing costs soaring to 14-year highs. In November, Nationwide warned of a potential 30% drop in prices in a worst-case scenario.

Eoin Treacy's view

It is well understood that quantitative easing causes asset price inflation. Over the last 15 years, artificially low rates and abundant credit supported concurrent bull markets in bonds, equities, property, crypto and collectibles. It is logical to then conclude that quantitative tightening and higher rates results in asset price disinflation/deflation.

The Bank of England injected around £140 billion of liquidity into the UK economy during the pensions crisis last year. Shortly afterwards they go straight back to contracting the balance sheet. The Federal Reserve and the ECB are doing the same thing. At the same time short-term interest rates continue to march higher. Together, they are increasing the risk of retrenchment in asset prices.

The UK bond and stock markets have already sold off but properties have been resilient. The dearth of supply and large numbers of people who own their homes, and are unwilling to sell, has supported prices. However, now that rates are pushing affordability even further out of reach, prices are easing. That’s going to be a significant factor in the Bank of England’s rate setting strategy.

As a result the Pound is easing back from the $1.30 area against the US dollar and is holding mid-range against the Euro.

It has been my view over the last year that a deflationary shock will be required to check central bank rate hiking fervour. As food and property prices fall together that is looking increasingly likely.


Banks have been bereft of fee income over the last decade so interest rate hikes are a welcome development for the sector. HSBC broke out to new recovery highs today for that reason and continues to expand in Asia so is less dependent on loan growth in the UK or Europe.