Annual house price growth turned negative in February, falling to its weakest level since 2012, according to the latest Nationwide House Price Index.

House prices fell 1.1% year-on-year in February – the first annual decline since June 2020 and the weakest since November 2012.

Between January and February, house prices dropped by 0.5% to £257,406, equal to a fall of £891.

Prices are 3.7% lower than their August peak last year and their weakest in February since 2012.

Robert Gardner, Nationwide’s Chief Economist, said: “Annual house price growth slipped into negative territory for the first time since June 2020, with prices down 1.1% in February compared with the same month last year. Moreover, February saw a further monthly price fall (-0.5%) – the sixth in a row – which leaves prices 3.7% below their August peak (after taking account of seasonal effects).

“The recent run of weak house price data began with the financial market turbulence in response to the mini-Budget at the end of September last year. While financial market conditions normalised some time ago, housing market activity has remained subdued.

“This likely reflects the lingering impact on confidence as well as the cumulative impact of the financial pressures that have been weighing on households for some time. Indeed, inflation has continued to outpace wage growth and mortgage rates remain significantly higher than the lows recorded in 2021. Even though consumer sentiment has improved in recent months, it is still languishing at levels prevailing during the depths of the financial crisis.

“It will be hard for the market to regain much momentum in the near term since economic headwinds look set to remain relatively strong, with the labour market widely expected to weaken as the economy shrinks in the quarters ahead, while mortgage rates remain well above the lows prevailing in 2021.

“Indeed, despite the modest fall in house prices, for a prospective first-time buyer earning the average income looking to buy the typical home, mortgage payments remain well above the long run average as a share of take-home pay. In addition, deposit requirements remain prohibitively high for many and saving for a deposit remains a struggle given the rising cost of living, especially for those in the private rented sector, where rents have been rising strongly.

“However, conditions should gradually improve if inflation moderates in the coming months as expected, easing pressure on household budgets. Solid gains in nominal incomes together with weak or declining house prices will also support housing affordability, especially if mortgage rates edge lower in the coming months.”

Industry reactions:

Nathan Emerson, CEO of Propertymark: “Despite house prices falling, values are still higher than pre-pandemic. Because of this, our member agents recently reported an 80 per cent increase in new sellers entering the market, showing that despite not pulling in as much money from a sale than they would have done last year, sellers still have a healthy appetite to get moving.

“Previously, sellers were able to be more ambitious about the price, but buyers are most certainly now in the driver’s seat and are negotiating hard when hunting for their ideal home.”

Jeremy Leaf, north London estate agent: “These comprehensive and widely respected figures reiterate continuing worries about interest rates and inflation, which are keeping prices in check.

“However, the market is definitely not in free-fall. On the ground, we are seeing more listings and protracted sales so buyers have more choice, are taking longer and negotiating harder when making offers.”

Jason Tebb, CEO of OnTheMarket.com: “With annual house price growth turning negative in February for the first time since June 2020, the inevitable rebalancing of the market continues as we head towards spring.

Rising interest rates, combined with a higher cost of living have contributed to a slowdown in activity in the market, inevitably impacting the confidence of the average property-seeking consumer in the short term. However, with inflation appearing to have peaked and market expectations that interest rates are similarly close to their peak, pressure on household budgets should start to ease in coming months.

In the meantime, serious buyers and sellers are getting on with the business of moving. Buyers have less buying power, so vendors need to ensure properties are priced correctly by taking advice from an experienced local agent if they are serious about selling.”

Frances McDonald, research analyst at Savills: “The latest Nationwide house price index shows that prices are down -1.1% in the year to February, the first annual decline since June 2020 and the weakest since November 2012.

“While the Bank base rate has continued to rise, we’re starting to see greater stability in the mortgage markets with fixed rate mortgage rates coming down from a peak in October and more mortgage products now available to borrowers, particularly at lower LTV ratios. This is likely a reflection of lenders trying to gain a greater share of a smaller mortgage market, but there is also an increasing expectation that inflation has peaked and that Bank base rate is likely to start coming down in 2024.

“The top end of the market, where a smaller proportion of buyers rely on debt, has continued to outperform. In February, overall net market activity (agreed sales less any fall throughs) was running at 73% of the February 2022 level, according to data from TwentyCi. For the market above £1m, that figure was 79%. And compared to before the pandemic, net activity levels across the whole market are at 86% of their February 2019 level but 44% above for the market over £1m.

“Borrowers are still facing a considerable increase in their mortgage costs, whether new entrants to the market or those coming off of a fixed rate deal, which means we likely haven’t seen the end of house price falls. But we do expect them to continue to be more modest in the less mortgage-dependent prime markets.”

Jonathan Hopper, CEO of Garrington Property Finders: “Six straight months of falling house prices have finally pushed the annual rate of change into negative territory.

“The return of annualised price falls – something not seen since the depths of the pandemic – makes for uncomfortable reading for sellers. And on the first meteorological day of spring, it’s a reminder that some parts of the market are taking a long time to thaw out from the Truss-era deep freeze.

“While mortgage rates have settled down and consumer confidence is recovering to a degree, things are still fragile and buyers are intensely price sensitive.

“Price falls have been gradual rather than dramatic, especially when compared to the soaring prices of the post-pandemic boom. And while transaction volumes are still down on where they should be for this time of year, buyer demand is better than many dared hoped it would be.

“Things remain tough for first-time buyers, but those who can and need to buy continue to do so, even if they are pricing the risk of further price softening into their offers.

“The market is gradually finding its feet again, and strategic buyers in particular are sensing that there are some good deals are to be had. But all eyes will be on the Chancellor in a fortnight’s time to see if the Budget will include any surprise support for those who are struggling to move.”

Marc von Grundherr, director of Benham and Reeves: “House prices have been sky high for quite some time and it’s fair to say that, having flown too close to the sun, they’re now starting to come back down to earth as a result of wider economic headwinds.

The good news is that this return to normality has been a smooth one so far and we’re yet to see the crash landing that many so widely predicted.”

James Forrester, MD of Barrows and Forrester: “The high rates of house price growth seen in recent years simply weren’t sustainable and, in fact, a reduction in property values, however marginal, will be warmly welcomed by those struggling to overcome the high cost of homeownership.

That said, we’ve seen a strong start to the year where housing market activity is concerned and so those who do want to capitalise on cooling house prices are best advised to act sooner rather than later, as this negative trend certainly won’t last for long.”

How low will house prices go this year?