UK house prices remained unchanged month-on-month in September, but fell 5.3% year-on-year, according to new data released by Nationwide on Monday. This followed a 0.8% decline month-on-month in August, the fastest pace of decline since 2009.
All regions recorded annual house price falls in the third quarter, according to Nationwide's monthly house price monitor.
The South West was the weakest performing region, with prices down 6.3% year on year.
The terrain remains challenging for affordability. Someone earning an average income and purchasing the typical first-time buyer home with a 20% deposit would spend 38% of their take home pay on their monthly mortgage payment — well above the long-run average of 29%, said Robert Gardner, Nationwide's chief economist.
"With Bank Rate not expected to decline significantly in the years ahead, borrowing costs are unlikely to return to the historic lows seen in the aftermath of the pandemic," he added.
"Instead, it appears more likely that a combination of solid income growth together with modestly lower house prices and mortgage rates will gradually improve affordability over time, with housing market activity remaining fairly subdued in the interim."
Mortgage approvals — a forward-looking indicator — dropped 8% in September compared to August, according to recent Bank of England data, with lending likely to remain weak.
"For now, first-time buyers and those remortgaging can take some comfort from more competitive mortgage deals as lenders compete aggressively for business," said Alice Haine, personal finance analyst at Bestinvest.
"Just remember some offers may be too good to be true, with lenders guilty of using attractive rates to mask sharp increases in arrangement or product fees. Calculating the overall cost of the product is vital in assessing whether one product is a better deal than another."
Buyers are now turning to smaller, less expensive properties to make their money go further, with transaction volumes for flats holding up better than other property types, Nationwide found.
Despite this, "the price underperformance has continued in the most recent quarterly data, with flats seeing the largest year-on-year fall (-5.7%), compared to -3.6% for detached, -4.6% for semi-detached and -5.3% for terraced properties," said Gardiner.