UK annual house price growth slowed to 1.7% in May, from 3.0% in April, the latest Nationwide house price index shows.
Prices fell by 0.6% month-on-month, after taking account of seasonal effects – the first monthly decline so far this year.
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.
“There has been some positive news, in that the UK economy entered this shock on a slightly stronger footing than expected. The economy grew by a healthy 0.6% quarter on quarter in the first three months of the year, while inflation softened more than expected in April.
“Nevertheless, 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 of the shock and the policy response.
“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.”
Nicky Stevenson, managing director at Fine & Country, commented: “A dip in May will feel like a change of tone after the spring uplift, but it’s not entirely unexpected given the backdrop.
“Momentum was always likely to soften in the face of greater uncertainty, with higher fuel prices, and looming household energy bill hikes feeding into sentiment and market interest rates.
“Importantly, this looks more like a pause than a reversal. Annual growth has cooled to 1.7%, but the market has proven remarkably resilient over the past few years, and many households are still in a relatively solid position.
“We’re seeing that buyer confidence has taken a knock and enquiries have softened, which helps explain why pricing has eased back this month. However, affordability has been improving over recent years as incomes have outpaced house price growth. To help more buyers get on the ladder, many mortgage lenders have trimmed rates on selected deals in recent weeks, which has helped support momentum heading into the summer.
“In practical terms, May has been a more value-led market. Buyers are active, but they are selective and more rate-sensitive, and that’s pushing the market to be more realistic. If the current shock proves short-lived and cost-of-living pressures ease a little, this cooldown should also be short-lived.
“Sellers should expect greater flexibility on their asking price in the coming months, and should listen to market valuations if they want to generate enough interest to ensure an efficient sale.”
Jason Tebb, president of OnTheMarket, added: “The fallout from the war in the Middle East is making itself felt, with uncertainty and the challenging economic backdrop resulting in a softening in the market and some loss of momentum.
That said, the housing market continues to demonstrate resilience. Average prices dipped on a monthly basis as focused, price-sensitive buyers negotiate hard, while sellers realise that they will struggle to sell over-ambitiously priced homes.
This is the strongest buyers’ market we have seen in many years, with plenty of stock to choose from. Needs-based buyers are transacting, encouraged by lenders continuing to trim their mortgage rates. The Bank of England’s decision to hold interest rates at recent meetings is having a steadying effect, suggesting a calm, considered approach with no need to panic.”
