UK house prices fall to 24-year low in real terms as inflation wipes £63,000 off property values
The average British home is worth less in inflation-adjusted terms than it was 24 years ago, according to new Nationwide figures, as rising prices across the wider economy and higher mortgage costs erode the real value of residential property.
Data from Nationwide Building Society show that the average inflation-adjusted house price fell to £276,157 between July and September 2026, representing a 2% decline from the previous quarter.
The figures indicate that real house prices have fallen approximately 19% from their most recent peak in 2021, equivalent to a loss of nearly £63,000 in purchasing-power terms over five years.
Property values are now at their lowest inflation-adjusted level since late 2002, while the average home is worth almost £98,000 less in real terms than at the 2007 peak, immediately before the global financial crisis.
Although average house prices remain substantially higher than they were 24 years ago in cash terms, inflation has reduced the purchasing power of those values.
The distinction is significant for homeowners who have traditionally regarded property as a reliable long-term investment.
Higher mortgage rates have compounded the pressure on Britain’s housing market, reducing borrowing affordability and limiting the prices buyers can offer.
The average interest rate on a newly agreed two-year fixed-rate mortgage reached 4.72% in September, compared with 4.07% previously, according to Bank of England figures cited in the report.
For a typical £200,000 mortgage, that increase was estimated to add approximately £888 to annual borrowing costs.
The higher cost of finance has weakened demand, particularly among first-time buyers and households looking to move.
London has experienced some of the most pronounced difficulties, with flats in certain areas struggling to maintain their previous valuations.
Chris Sykes, co-founder of mortgage brokerage MSP Financial Solutions, said some homeowners who purchased properties five to ten years ago were finding themselves unable to sell without accepting substantial losses.
He highlighted an east London studio flat that had reportedly fallen 20% in value over six years, leaving its owners with little remaining equity after accounting for selling costs.
Another flat in north-east London, originally marketed at £550,000, reportedly attracted an offer of £480,000, representing a reduction of approximately 13%.
These examples illustrate the difficulties facing some sellers, although individual properties are not necessarily representative of the wider UK housing market.
The downturn has also coincided with increased pressure on buy-to-let landlords, with higher financing costs and changes to the regulatory and tax environment encouraging some investors to sell.
Greater numbers of properties being offered for sale can add to competition between sellers, particularly in markets where buyer demand is already subdued.
Economists have questioned whether residential property can continue delivering the inflation-beating returns experienced during previous decades.
Paul Cheshire, emeritus professor at the London School of Economics, has challenged the widespread assumption that owner-occupied housing should be treated primarily as an investment asset.
However, falling real house prices do not necessarily mean that property ownership has become financially unattractive in every circumstance. Housing also provides accommodation, and financial outcomes depend on purchase price, mortgage costs, maintenance, rental alternatives and the length of ownership.
Lower inflation-adjusted property prices could eventually improve affordability relative to earnings, but higher mortgage interest rates mean monthly payments can remain expensive even when purchase prices weaken.
The latest Nationwide figures are based on the building society’s mortgage approval data and use a representative property index to account for differences in the types of homes purchased.
Its inflation-adjusted measure uses the Retail Prices Index (RPI), allowing historical property values to be compared in terms of purchasing power.
The findings reveal a substantial erosion of real housing wealth since 2021, with homeowners facing the combined effects of inflation, expensive mortgages and weaker buyer demand.
For prospective buyers, lower real prices may offer longer-term opportunities, but affordability will continue to depend heavily on mortgage rates and household incomes.
The central challenge for Britain’s property market is that house prices have become less valuable in real terms without necessarily becoming cheaper to finance, leaving both buyers and sellers under pressure as the housing market adjusts to higher borrowing costs.
