House prices fell by -0.6% in May, according to Nationwide.
This meant annual growth in May was 1.7%, down from 3.0% in April. Lower levels of consumer confidence, energy price rises and higher mortgage rates mean that this loss of momentum is not a surprise. Whether this softening in house prices proves temporary remains to be seen; however, the duration of the current economic shock will largely depend on developments in the Middle East
Mortgage approvals for new house purchases rose by 3% and reached a 15-month high in April.
While mortgages for new home purchases rose to 65,900, there were also 51,260 approvals for remortgaging, making April the highest month since October 2022 and the second consecutive month where this metric has topped 50,000. With little no indication that mortgage rates will come down in the short to medium term, and the risk of further rate rises mean that borrowers are looking to hedge against a greater economic shock by locking in mortgage rates at their current level.
More forward-looking indicators show weak buyer demand and limited levels of stock coming to the market.
In May, sales agreed (net of fall throughs) were up 3% versus the 2017-19 average, however, price changes rose 39% over the same period according to TwentyCI. Surveyors reported low levels of new buyer enquiries in April (-34), limited levels of stock coming to the market (-3), and an expectation that there will be further price reductions (-34). All these indicators point to general slowdown in the sales market, with sellers needing to adjust prices in order to attract a smaller pool of more discretionary and cautious buyers.
Annual inflation fell to 2.8% but is expected to rise later this year.
The fall in inflation is due to a reduction in the government’s energy price cap; this is expected to rise again from July which will push inflation back towards the forecast peak of around 4.0% for 2026. We have adjusted our forecasts accordingly and expect that house prices will fall by -2.0% this year with the most significant falls taking place in the least affordable markets. There remains capacity for price growth in the medium term as the economy improves and the market becomes less affordability constrained, read more here.
More localised house price data from February shows that Scotland and the North West had the greatest price growth,
particularly East Dunbartonshire (9.3%), East Renfrewshire (8.6%) and East Ayrshire (8.2%). The weakest growth was in Brent (-6.5%), Hastings (-5.9%) and Kensington and Chelsea (-5.6%).
