UK house prices fell for the first time in six months in May, according to data from Nationwide, as higher borrowing costs and economic uncertainty weighed on the housing market.
Unexpected Decline
The average price of a UK home dropped by 0.3% month-on-month in May, following a 0.2% rise in April. This was the first decline since November 2023, and it surprised economists, who had expected a modest increase. On an annual basis, house prices rose by 1.2%, slowing from 1.4% in April.
Nationwide's chief economist Robert Gardner said: “The slowdown in annual price growth reflects a softening in demand, partly due to the impact of higher interest rates on mortgage affordability. While the housing market has shown resilience in recent months, the latest figures suggest that the recovery may be losing momentum.”
Mortgage Rates Bite
The decline in house prices comes as mortgage rates remain elevated, with the average two-year fixed rate still above 5%. Although the Bank of England is expected to cut interest rates later this year, the timing remains uncertain, and borrowers continue to face high costs. The number of mortgage approvals has also fallen in recent months, indicating weaker demand.
Regional data showed mixed results, with London and the South East experiencing the largest price drops, while northern regions saw more modest declines or even slight increases. The average UK house price now stands at £262,000, down from £264,000 in April.
Market Outlook
Economists expect house prices to remain under pressure in the coming months, as the lagged effects of previous rate hikes continue to feed through. However, a strong labour market and rising wages could provide some support. The housing market is likely to remain subdued until there is more clarity on the path of interest rates.
The government has faced criticism for not doing enough to address the housing crisis, with the shortage of affordable homes remaining a key issue. The opposition has called for more social housing and measures to help first-time buyers.
Overall, the latest data suggests that the UK housing market is losing momentum after a brief recovery earlier this year. While prices are still above pre-pandemic levels, the outlook is uncertain, and further declines cannot be ruled out.
