Annual house price growth falls to -3.4%: Nationwide

Following tentative signs of improvement in April, annual house price growth softened again in May, falling back to -3.4% from -2.7% in April, the latest Nationwide house price index shows.

However, Nationwide says this largely reflects base effects with prices falling by just 0.1% in May.

Robert Gardner, Nationwide's chief economist, said: “Recent Bank of England data had shown some signs of recovery in housing market activity, although the number of mortgages approved for house purchase in March was still around 20% below pre-pandemic levels.

“Moreover, headwinds to the housing market look set to strengthen in the near term. While consumer price inflation did slow in April, it was a much smaller decline than most analysts had expected. As a result, investors’ expectations for the future path of Bank Rate increased noticeably in late May, suggesting it could peak at c5.5%, well above the c4.5% peak that was priced in around late March. Furthermore, rates are also projected to remain higher for longer.

“If maintained, this is likely to exert renewed upward pressure on mortgage rates, which had been trending down after spiking in the wake of the mini-Budget in September last year.

“Nevertheless, in our view a relatively soft landing remains the most likely outcome since labour market conditions remain solid and household balance sheets appear in relatively good shape.
“While activity is likely to remain subdued in the near term, healthy rates of nominal income growth, together with modestly lower house prices, should help to improve housing affordability over time, especially if mortgage rates moderate once Bank Rate peaks.”

Director of Benham and Reeves, Marc von Grundherr, commented: “We’ve seen a promising start to the year so far in terms of buyer interest returning to the market but what we’re simply not seeing is this interest convert at the same rate.

"This buyer hesitation has been largely spurred by increasing interest rates and while the market is standing firm, it’s this more tentative approach to buying that is causing house prices to stutter.”