According to Nationwide’s House Price Index, it is the largest annual decrease so far with annual house price decreases to this point have ranged between negative 1.1% in February to negative 3.8% in July.

Nationwide added that this represented an annual fall of around £146,000 on a typical home.

The report added that house prices fell by 0.8% over the month, which is up from negative 0.3% last month.

The average house price in the UK stands at £259,153, which is down from £260,828 in July and £273,751 in August last year.

Robert Gardner, Nationwide’s chief economist, said that the “softening is not surprising”, pointing to a rise in borrowing costs, which has muted housing market activity.

However, he said that a “relatively soft landing” was still “achievable” as unemployment was expected to remain low at below 5%, with high proportion of fixed rates protecting borrowers and affordability testing ensuring those refinancing can afford 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 the bank rate peaks,” he added.

Gardner continued that the number of completed housing transactions in the first half of the year was nearly 20% below pre-pandemic levels and around 40% down on the first half of 2021.

He noted that cash purchases had been “remarkably resilient”, with only “a slight decrease”, whilst mortgage purchases had fallen much more sharply.

He said that homemover completions with a mortgage were a third down on 2019 levels, first-time buyers were around a quarter lower and buy-to-let purchases with a mortgage were around 30% down. Cash purchases were up 2%.

The fall in mortgage activity “reflects mounting affordability pressures as a result of the sharp rise in mortgage rates since last autumn, which would not have affected cash buyers”. He said monthly mortgage payments for a first-time buyer with an average wage buying a property with a 40% deposit would be 40% of their take-home pay, which is up from average of 29%.

Gardner said that buyers seemed to be opting for smaller, less expensive properties and flats were seeing a smaller decline compared to detached homes.

Higher mortgage rates are ‘hitting the property market for six’

Emma Jones, managing director of independent mortgage broker, When The Bank Says No, said that “higher mortgage rates” were “hitting the property market for six”.

She continued that in the “new mortgage environment” was “brutal” and “borrowers now need to be savvy”.

Christian Duncan, managing director of the Manchester Mortgage Centre, agreed that the figures showed that the high mortgage rates were putting the property market “under phenomenal pressure at the moment”.

However, he said that while homemovers were being more cautious, it was still receiving first-time buyer enquiries.

“Since the mini Budget and with all the recent rate increases, first-time buyers have changed their mindsets and are no longer looking to borrow as much as possible but are coming forward with a maximum spend per month and looking to find a property that is in line with their budget.”

An ongoing issue or a blip?

Myron Jobson, senior personal finance analyst, interactive investor, noted growing affordability issues and pointed out that the market was unlikely to recover quickly.

He said: “It is a case of different month, same headwinds for the housing market. Annual home values plunged to a new 14 year low – down 5.3% in the month of August. The slide in prices looks set to continue as the affordability pressures pushing prices down show persist.”

Meanwhile, Charlotte Nixon, mortgage expert at wealth manager Quilter, was slightly more optimistic.

She said: “There is no doubt that the housing market is under strain at the moment but this still may be a relatively minor blip. While on one hand, rising borrowing costs and the unpredictability of the global economy might be influencing this trend, on the other hand, the inherent human drive for homeownership, especially post-pandemic, remains strong and if stability can be found in the coming months and interest rates can stay relatively steady demand is likely to return especially given wage inflation has been so strong recently.