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. According to Nationwide, the average UK home dropped 0.6% month-on-month, with the typical price standing at £278,024.
The annual growth rate slowed to 1.7% in May, down from 3% in April. Robert Gardner, Nationwide's chief economist, attributed the slowdown to uncertainty from the Middle East conflict, which has pushed up energy prices and market interest rates.
Mortgage rates have risen across the market, with the average two-year fixed rate at 5.68% and the five-year fix at 5.63% at the end of May, according to Moneyfacts. Tom Bill of Knight Frank noted that the market is slowing at a time when momentum typically builds, warning that higher borrowing costs will erode spending power and squeeze prices.
Savills has revised its forecast, now predicting a 2% fall in house prices this year, citing the Iran war's impact on the property market outlook. However, Gardner expressed cautious optimism, noting that swap rates remain below 2023 highs, suggesting any softening may be short-lived if energy prices normalise.
Martin Beck of WPI Strategy cautioned that even if mortgage rates edge lower, affordability remains stretched, with mortgage repayments absorbing a historically large share of incomes. A weakening labour market could pose a greater threat to prices than interest rates alone.
