UK house prices fell unexpectedly in May, marking the third consecutive monthly decline, as rising mortgage rates fuelled by the war in Iran continued to affect affordability and homebuyer demand. According to lender Halifax, the average price of a typical UK home dropped by 0.1% to £298,806 in May, following falls of 0.1% in April and 0.5% in March. Analysts had forecast a 0.1% rise.
Amanda Bryden, head of mortgages at Halifax, said: “Property price trends continue to reflect the uncertainty linked to developments in the Middle East. Despite recent cuts to mortgage rates, higher inflation expectations have kept borrowing costs above the level seen at the start of the year, continuing to stretch affordability for many buyers and temper demand.” On an annual basis, house prices grew by 0.5%, up slightly from 0.4% in April but well below the 1% growth analysts had expected.
Bryden noted that house prices are expected to “remain broadly stable” in the coming months despite stubbornly high mortgage rates. Halifax has already halved its forecast for annual house price growth this year. According to Moneyfacts, the average two-year fixed mortgage rate stood at 5.66% on Thursday, up from 4.83% at the start of March, while the average five-year fixed-rate mortgage was 5.62%, up from 4.95%.
Jason Tebb, president of OnTheMarket, described the current market as “the strongest buyers’ market we have seen in many years, with plenty of stock to choose from.” He added: “Little movement in average house prices suggests buyers and sellers are adopting a pragmatic outlook and adjusting expectations rather than a loss of confidence. Steadier prices are better as far as those trying to get on the ladder for the first time are concerned, as there is less risk of being priced out further.”
However, Halifax’s Bryden said the latest figures showed that growth in activity among first-time buyers was “more subdued”. UK inflation slowed to 2.8% in April, the lowest rate in more than a year, but economists believe inflation is likely to increase in the coming months due to factors including a 13% increase in the household energy price cap from July to £1,850 a year.
Amy Reynolds, head of sales at estate agent Antony Roberts, said: “The market is defined by a mismatch. Cautiously motivated sellers, cost-conscious buyers with genuine negotiating power. This market needs stability and it needs transactions – and frankly, so does the country.” Earlier this week, Nationwide reported its first fall in monthly house prices this year in May, using a different methodology.
