UK home prices drop after a brief recovery

home prices

Nationwide’s house-price index showed that house prices dropped by 0.1% MoM in May

UK home prices have begun to drop again, following a short recuperation in April, as per the latest figures from Nationwide.

The building society’s house-price index showed that house prices dropped by 0.1% MoM in May following a 0.4% rise in April.

On an annual basis, property prices declined by 3.4% in May, compared with the 2.7% decline during the month earlier.

This mostly reflects base effects, with prices widely flat over the month after considering seasonal effects, stated Robert Gardner, Nationwide’s chief economist.

Average prices remain 4% below their peak in August last year. Recent BoE data had revealed some signs of recovery in housing market activity, although the number of mortgages approved for home purchases in March was still nearly 20% lower than pre-pandemic levels.

With inflation still high, bond yields increased past week, meaning lenders raised mortgage rates amid anticipations that the BoE has not completed hiking interest rates in this current cycle.

Headwinds to the housing market appear to be set to strengthen in the near term, Gardner added.

While consumer price inflation slowed down in April, it was a much smaller drop than most experts had anticipated, Gardner said.

Subsequently, investors’ hopes for the future path of the bank rate rose notably in late May, indicating it could peak at 5.5%, well above the 4.5% peak that was priced in around late March, he said.

Moreover, rates are also estimated to stay higher for longer, Gardner added.

Ross McMillan of Blue Fish Mortgage Solutions added that May started hopefully and then veered violently in the last week or so from comparative stability to wild instability within the blink of an eye.

How this recent shock to borrowers’ systems affects the general housing market in the recent future is tough to measure but anecdotally, appetite from FTBs, especially, continues to be stubbornly strong so far.

Economists had been anticipating a marginal increase in the monthly figure and still anticipate a “soft” landing for the housing market, instead of a crash.

But that little bit of comfort will mean little to struggling households in the upcoming months, experts added.

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