UK house prices fell for the first time this year in May, as rising mortgage rates triggered by the war in Iran dampened homebuyer demand. The average home price dropped 0.6% month-on-month to £278,024, according to Nationwide.
Annual price growth slowed to 1.7% in May, down from 3% in April. Robert Gardner, Nationwide's chief economist, said the loss of momentum was expected given the uncertainty from the Middle East conflict and subsequent rises in energy prices and market interest rates.
Mortgage rates have broadly increased, with the average two-year fixed rate at 5.68% and five-year fix at 5.63% at the end of May, data from Moneyfacts showed. Tom Bill of Knight Frank noted the housing market is slowing at a time when momentum typically builds, warning that higher borrowing costs will erode spending power and squeeze prices.
Savills now forecasts a 2% fall in house prices this year, revising its previous expectation of a 2% rise, citing the war's impact on the outlook. However, Gardner noted that swap rates remain below 2023 highs, suggesting any softening may be short-lived if the shock passes quickly.
Martin Beck of WPI Strategy cautioned that even if mortgage rates edge lower, affordability remains stretched and a weakening labour market could pose a greater threat to prices. The Bank of England held its key rate at 3.75% in April, with Governor Andrew Bailey indicating no rush to raise rates amid economic uncertainty.
