Annual growth slowed sharply to 1.7%, down from 3% in April

UK house prices dropped 0.6% month on month in May after seasonal adjustment, according to Nationwide Building Society’s latest House Price Index — the first monthly decline recorded this year.

Annual growth slowed sharply to 1.7%, down from 3% in April. The average house price stood at £278,024, compared with £278,880 the previous month.

Nationwide attributed the softening to turbulence triggered by developments in the Middle East, which has pushed energy prices and market interest rates higher.

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, said Robert Gardner, chief economist at Nationwide Building Society.

Indeed, consumer confidence has weakened noticeably since the start of the conflict, with GfK’s headline index falling to its lowest level since late 2023 in April, with only a marginal increase in May, he said.

On the longer-term picture, he pointed to the resilience of household finances, with total household debt relative to income at its lowest level for around two decades, and to the cumulative improvement in affordability that had built up in recent years through income growth outpacing house price gains.

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, Gardner said.

He said: 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.