British house prices last month dropped in annual terms for the first time in nearly three years, falling by 1.1% compared with February 2022, mortgage lender Nationwide said on Wednesday, adding to signs of a slowdown in the housing market.
With inflation still above 10% and borrowing costs rising, the house price fall represented the first annual drop since June 2020 - early in the coronavirus pandemic - and the biggest such decrease since November 2012, Nationwide said.
Compared with January, prices were down by 0.5% for the sixth month-on-month fall in a row, the longest such run since 2008.
Economists polled by Reuters had expected prices to fall by 0.9% from a year earlier and by 0.4% in monthly terms.
Nationwide said prices were now 3.7% lower than their peak in August last year.
Official interest rates have been on a steep rise since late 2021 and the mortgage market suffered major disruption in late September and October following former prime minister Liz Truss's "mini budget", which pushed up market borrowing costs.
Nationwide chief economist Robert Gardner said the market would struggle to recover in the near term given the risk of a recession, and mortgage payments were well above their average as a share of take-home pay.
"However, conditions should gradually improve if inflation moderates in the coming months as expected, easing pressure on household budgets," Gardner said.
"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."
Nationwide forecast in December that house prices would fall 5% in 2023.
A Reuters poll of analysts published on Tuesday showed British home prices were expected to fall by 2.4% in 2023, less than previously expected as a resilient job market and easing recession fears softened the blow from higher borrowing costs.
The Bank of England was due to report on the number of mortgage approvals in January at 0930 GMT on Wednesday after they sank to their lowest level since the global financial crisis in December, excluding the very start of the COVID-19 pandemic when there were strict lockdown restrictions.
