Nationwide has reported that annual UK house price growth slowed in May and fell month-on-month, the first monthly decline of the year so far.
Nationwide’s House Price Index saw annual growth slow to 1.7% in the month, down from 3% in April. On a monthly basis, Nationwide reported a decrease of 0.6% of the average house price, following a small rise of 0.4% in the previous month. The average price now stands at £278,024.
Robert Gardner, Nationwide’s chief economist, said: “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.”
Nationwide says that there are some signs of positivity, however, helped by the UK economy being in a slightly better than expected position at the start of the conflict. The economy grew by 0.6% quarter-on-quarter in the first three months of the year, while inflation softened more than expected in April.
Despite that, Nationwide still expects that economic growth is likely to be somewhat weaker and inflation higher than previously expected this year as a result of developments in the Middle East, although the impact will ultimately depend on the duration and the policy response.
Robert Gardner continued: “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.”
“This provides some confidence that, if the latest shock passes relatively quickly, and energy prices normalise in the quarters ahead, any near-term softening in the housing market will also prove short-lived.”
