Annual house price growth slowed in May as economic uncertainty and affordability pressures weighed on buyer confidence.
According to the latest figures from Nationwide Building Society, annual house price growth eased to 1.7% in May, down from 3.0% in April, while prices fell by 0.6% month on month on a seasonally adjusted basis. The average house price stood at £278,024.
Robert Gardner, chief economist at Nationwide, said: “UK annual house price growth slowed to 1.7% in May, from 3.0% in April. Prices fell by 0.6% month on month, after taking account of seasonal effects – the first monthly decline so far this year.
“Given the uncertainty caused by developments in the Middle East and the subsequent rise in energy prices and market interest rates, some loss of momentum was to be expected.
“Indeed, consumer confidence has weakened noticeably since the start of the conflict, with GfK’s headline index falling to its lowest level since late-2023 in April, with only a marginal increase in May.
“Measures of housing market sentiment have also deteriorated. The Royal Institution of Chartered Surveyors reported a sharp fall in new buyer enquiries in March, taking the index to its weakest reading since 2023 and remained deep in negative territory in April.”
Gardner said there were still some positive signs for the wider economy, noting that GDP growth and easing inflation had helped provide a more stable backdrop than expected at the start of the year.
He said: “The UK economy and housing market have proved remarkably resilient in recent years. Household finances are solid, with total household debt at its lowest level relative to income for around two decades, and sizeable savings buffers have been built up, though these are not evenly distributed across households.
“Moreover, housing affordability had been improving steadily in recent years due to a combination of income growth outpacing house price growth by a wide margin and a modest decline in borrowing costs.
“While market interest rates have risen in recent months, the impact on affordability has so far been modest. Indeed, swap rates, which underpin fixed-rate mortgage pricing, remain well below the highs reached in 2023 and are broadly in line with levels prevailing in 2024, implying only a partial reversal of earlier gains.”
Industry commentators said affordability pressures and geopolitical uncertainty were likely to continue influencing market activity over the coming months.
HEADWINDS
Ian Futcher, financial planner at Quilter, said: “UK house prices are beginning to come under pressure as the various headwinds it is up against weigh on market momentum. House prices fell by 0.6% in May and annual price growth dropped from 3.0% in April to 1.7% in May, bringing the average property price to £278,024.
“The Bank of England has held rates for now, but the outlook remains uncertain. Much will depend on how the situation in the Middle East evolves and what that means for inflation and energy prices. Any sustained pressure here could yet force policymakers to rethink their path.
“For now, we can expect the housing market to remain subdued. Higher energy costs are continuing to feed through to household budgets and affordability will be increasingly stretched, weakening consumer sentiment further.”
Futcher added that mortgage pricing would remain central to market conditions.
He said: “Mortgage rates will continue to dictate the pace of the market in the months ahead. Swap rates are heavily influenced by global developments, and without a clear resolution to current tensions there is a risk they could edge higher again.
“For those looking to buy or remortgage, rates are no longer rising sharply, but nor is there a clear path downwards. In this environment, reviewing options early and keeping flexibility, ideally with the support of a mortgage adviser, will put borrowers in a stronger position as the market continues to adjust.”
HARD NEGOTIATIONS
Mark Harris, chief executive of mortgage broker SPF Private Clients, said buyers remained cautious despite improving mortgage pricing.
He said: “Falling monthly house prices suggest needs-based buyers are not willing to pay over-the-odds for a property but are negotiating hard.
“Lenders continue to cut their mortgage rates, and the steadiness from the Bank of England in holding base rate should lead to a period of calm after much volatility.
“Borrowers are taking nothing for granted as the continued high cost of living strains affordability. Many are taking the sensible approach of securing mortgage rates in advance of when needed for peace of mind. Others are keen to proceed with already-reserved rates while they have them.”
