Average UK House Prices Decline as Interest Rate Hikes Loom

Nationwide, Britain’s largest building society, has reported a 3.4% decrease in house prices over the past year. In May alone, there was a 0.1% month-on-month slump following a 0.4% rise in April. These figures bring the average house price to £260,736, according to Nationwide’s data.

The latest data reveals that average property prices have fallen in eight out of the past nine months, highlighting a downward trend in the housing market. The decline in prices comes as forecasts indicate an imminent rise in interest rates, which is putting pressure on the market.

The Bank of England is now anticipated to raise interest rates to 5.5% by the end of the year, prompted by recent data showing that UK inflation is not subsiding as quickly as anticipated. Inflation, as measured by the Consumer Prices Index, increased by 8.7% in the 12 months leading up to April, down slightly from 10.1% in March. Soaring food prices, reaching a 45-year high, are the primary driver behind this inflationary pressure.

Robert Gardner, a representative from Nationwide, expressed concern over the smaller-than-expected decline in consumer price inflation in April. This led to an increase in investors’ expectations for the future path of the Bank of England base rate, with indications that it could peak around 5.5%, surpassing the 4.5% peak anticipated in late March.

Furthermore, interest rates are projected to remain higher for an extended period. This is likely to place renewed upward pressure on mortgage rates, which had been trending downwards after a spike following last year’s mini-budget in September.

The impact of rising interest rates is already being felt in the housing market. Myron Jobson, from Interactive Investor, noted that concerns about tackling persistent inflation have led to a withdrawal of 7% of mortgages from the market since last week, as lenders reassess their offerings. Average rates on two- and five-year fixed deals have also risen, making it more challenging for prospective buyers who are budget-conscious.

Additionally, house sales have reached their lowest levels since the introduction of social distancing measures during the pandemic, which made in-person house viewings impossible. HM Revenue & Customs’ data released on Wednesday reflects this decline.

James Forrester, an estate agent from Barrows and Forrester, acknowledged that those waiting for a return to the double-digit price growth experienced during the pandemic’s peak will need to exercise patience. However, the overall outlook remains positive, and while a natural correction was expected, there are no signs of an impending market crash.

As interest rates continue to rise, the UK housing market faces challenges in terms of affordability and reduced sales activity. Prospective buyers will need to navigate the evolving landscape and potentially adjust their expectations in the face of these market shifts.