UK house prices experienced their most substantial annual drop in almost 14 years, according to the latest findings by Nationwide. The building society revealed that prices fell by 3.4% in the year leading up to May, marking the sharpest decline since July 2009. Additionally, concerns were raised regarding the impact of potential mortgage interest rate hikes on the housing market. Recent increases in mortgage rates have been driven by expectations that the Bank of England will need to raise interest rates due to persistently high inflation levels.
Nationwide cautioned that these factors could lead to further headwinds for the housing market in the near future. Official figures from last week indicated that UK inflation, a measure of escalating prices, slowed to 8.7% in April, a decrease that was below expectations. Consequently, analysts anticipate that the Bank of England may raise interest rates from their current level of 4.5% to as high as 5.5% in an attempt to curb rising prices.
Following the release of the inflation data, several lenders, including Nationwide, adjusted their mortgage interest rates, with the latter implementing the most significant increase of up to 0.45 percentage points. Moreover, figures released earlier this week disclosed that nearly 10% of mortgage deals in the UK have been withdrawn from the market since the previous week. Nationwide acknowledged that interest rates are expected to remain elevated for an extended period, potentially exerting renewed upward pressure on mortgage rates, as cautioned by Robert Gardner, Nationwide’s chief economist.
The Nationwide report revealed a slight decline of 0.1% in house prices for May, bringing the average property price to £260,736. However, Mr. Gardner highlighted that average prices remain 4% below their peak in August 2022. Nevertheless, the building society does not anticipate a severe downturn in the housing market, citing the solid labor market conditions and relatively healthy household balance sheets. Mr. Gardner further stated that although activity may remain subdued in the short term, the combination of robust nominal income growth and slightly lower house prices should enhance housing affordability over time.