This is the first monthly decline in the mortgage lender’s house price index this year and means annual growth has also slowed. Typical UK property values rose by 1.7% in May compared to 3% in April, meaning the average property price is now £278,024.
“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 expected,” said Robert Gardner, chief economist at Nationwide.
He added: “Gauges of housing market sentiment also deteriorated. The Royal Institution of Chartered Surveyors reported a sharp decline in new buyer inquiries in March, pushing the index to its weakest reading since 2023 and remaining deep in negative territory in April.”
He added that how house prices will go in the future depends on what happens in the Middle East.
“Although market interest rates have risen in recent months, the impact on affordability has been modest so far,” Gardner said. “In fact, 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 previous gains.”
“This provides some confidence that if the latest shock passes relatively quickly, and energy prices normalize in coming quarters, any near-term housing market downturn will also be short-lived.”
Impact of mortgage rates
There is still a lot of uncertainty about mortgage rates. Although it increased significantly at the height of the conflict in Iran, it has decreased slightly since then. However, experts believe that there will likely be interest rate increases before the end of the year.
“Mortgage rates will continue to set the pace for the market in the coming months,” said Ian Futcher, financial planner at Quilter.
“Swap rates are strongly affected by global developments, and without a clear resolution to the current tensions, there is a risk that they could rise again. For those looking to buy or remortgage, interest rates are no longer rising sharply, but there is no clear path down.
“In this environment, reviewing options early and maintaining flexibility, ideally with the support of a mortgage advisor, will put borrowers in a stronger position as the market continues to adjust.”
