"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"
- Robert Gardner - Nationwide
UK annual house price growth slowed to 1.7% in May, down from 3.0% in April, according to the latest Nationwide house price index. Prices fell 0.6% month on month after accounting for seasonal effects, marking the first monthly decline of the year.
"UK annual house price growth slowed to 1.7% in May, from 3.0% in April," said Robert Gardner, Nationwide's chief economist. "Prices fell by 0.6% month on month, after taking account of seasonal effects — the first monthly decline so far this year.
"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. 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.
"Measures of housing market sentiment have also deteriorated. The Royal Institution of Chartered Surveyors reported a sharp fall in new buyer enquiries in March, taking the index to its weakest reading since 2023 and remained deep in negative territory in April."
Where next?
Gardner pointed to some grounds for cautious optimism. "There has been some positive news in that the UK economy entered this shock on a slightly stronger footing than expected," he said.
"The economy grew by a healthy 0.6% quarter on quarter in the first three months of the year, while inflation softened more than expected in April.
"Nevertheless, economic growth is likely to be somewhat weaker and inflation higher than previously expected this year as a result of developments in the Middle East, although the impact will ultimately depend on the duration of the shock and the policy response."
Gardner noted that the UK economy and housing market have weathered significant pressures in recent years. "Household finances are solid, with total household debt at its lowest level relative to income for around two decades, and sizeable savings buffers have been built up, though these are not evenly distributed across households," he said.
"Moreover, housing affordability had been improving steadily in recent years due to a combination of income growth outpacing house price growth by a wide margin and a modest decline in borrowing costs.
"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.
"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."
Industry reaction
Tom Bill, head of UK residential research at Knight Frank, said, “This is further evidence that the housing market slowed down at precisely the time of year when you would expect momentum to be building.
"There won’t be a cliff-edge moment, but the impact of higher borrowing costs will erode spending power and squeeze house prices this year as mortgage rates agreed before the Middle East conflict gradually disappear. With the Bank of England likely to sit on its hands for the foreseeable future, we expect minimal house price growth in 2026, with uncertainty around the Budget and ideological direction of the government likely to keep a lid on activity.”
Nathan Emerson, CEO of Propertymark, comments, “Stable house prices will be welcomed by many buyers and sellers looking for greater certainty in the market after a prolonged period of economic volatility. Buyers who need to move are continuing to act decisively, particularly where mortgage rates have stabilised, and supply levels remain constrained.
“Many households are continuing to carefully assess affordability before making decisions, particularly as mortgage costs remain higher than many borrowers have become accustomed to over recent years. However, steady pricing can help support confidence and encourage more balanced negotiations between buyers and sellers.”
Marc von Grundherr, Director of Benham and Reeves, said, “A monthly dip in house prices shouldn't be mistaken for a market downturn. Buyers remain active, transaction levels are holding firm and house prices remain higher than they were this time last year.
"Yes, the landscape may be more challenging, but despite wider economic angst, higher mortgage rates and stubborn inflation, homebuyers are continuing to make their move when the right opportunity presents itself.”
Verona Frankish, CEO of Yopa, comments, “It’s important to judge the health of the property market with a long-term view, and the bigger picture remains one of stability, with house prices still higher than they were a year ago.
"Whilst we may have seen a marginal decline in property values on a monthly basis, this is unlikely to materialise into a long-term trend given we’re now entering peak selling season when the market really heats up.”
Chris Hodgkinson, Managing Director of House Buyer Bureau, noted, "Whilst annual house price growth remains in positive territory, the latest figures suggest that market confidence is becoming increasingly fragile.
"When buyer demand starts to cool, the impact is often felt first through slower transaction times, tougher negotiations and an increase in fall-through rates rather than outright price declines.
"The market remains active, but sellers who fail to adapt their expectations to current conditions may find it considerably harder to secure a sale.”
