UK house prices fell at their fastest annual rate for nearly 14 years last month, according to the latest data from Nationwide.
The building society’s figures show prices in the year to May fell by 3.4% – the largest drop since July 2009 – with the average UK property price now standing at £260,736.
The figures were announced just a few days after it was revealed that nearly 10% of mortgages have been taken off the market due to concerns about rising interest rates. This morning, the Bank of England also revealed that net mortgage approvals for house purchases fell from 51,500 in March to 48,700 in April.
Robert Gardner, Nationwide’s chief economist, said: “Following tentative signs of improvement in April, annual house price growth softened again in May, falling back to -3.4% (from -2.7% in April). However, this largely reflects base effects with prices broadly flat over the month after taking account of seasonal effects. Average prices remain 4% below their August 2022 peak.
“Moreover, headwinds to the housing market look set to strengthen in the near term. While consumer price inflation did slow in April, it was a much smaller decline than most analysts had expected. As a result, investors’ expectations for the future path of bank rate increased noticeably in late May, suggesting it could peak at circa 5.5%, well above the circa 4.5% peak that was priced in around late March. Furthermore, rates are also projected to remain higher for longer.”
Gardner added the housing market would experience a “relatively soft landing” due to solid labour market conditions coupled with household balance sheets appearing to be in relatively good shape.
“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 bank rate peaks,” said Gardner.
Chris Druce, senior research analyst at Knight Frank, added: “With fewer transactions at the start of the year due to the uncertainty caused by the mini-Budget, UK house price data has oscillated in recent months. However, today’s figures from Nationwide suggest that we’ve entered into a more stable period.
“There is still an element of price exploration playing out in the residential property market, as buyers and sellers adapt to the reduction in spending power that has occurred due to the significant increase in borrowing costs over the last 18 months.
“While an improved economic outlook and solid jobs market has supported buyer sentiment in recent months, and created an active spring sales market, further expected increases in borrowing costs after last week’s inflation figures will act as a brake. We expect this pressure, combined with an increase in supply relative to the pandemic period, will see UK property prices fall by a few percent this year.”
Hina Bhudia, partner, Knight Frank Finance, said: “The recovery in home purchasing activity paused in April as mortgage rates continued to tick up. Rates are likely to continue rising amid expectations that the Bank of England base rate will need to rise meaningfully higher than its current level of 4.5%. As of this morning, borrowers could still secure five-year fixed rate products below 4.5%, but likely not for long. Leading two-year fixed rate products are approaching 4.75%.
“Many borrowers are opting for the more expensive two-year fixed rate to avoid locking themselves in for five years at levels so much higher than their previous deal, but the path of mortgage rates is subject to a huge amount of uncertainty. Which is right for any borrower is highly personal and depends on their unique financial circumstances and appetite for risk.”
David Hannah, chairman at Cornerstone Group International, said: “The latest house price data from Nationwide, highlighting that house prices have experienced the biggest fall since July 2009, will be welcome news for homebuyers, and in particular, first-time buyers. However, there are still significant obstacles when looking to purchase a home. A rise in mortgage rates due to inflation figures being stronger than expected is unwelcome news for homeowners.
“However, I believe that the housing market has recently shown significant resilience, and I have a positive outlook for the remainder of the year. Prices are starting to stabilise, which will hopefully boost lender confidence. Of course, lenders will adjust rates according to interest rates, but if they see inflation moving in the right direction, that will be crucial.”
