UK house prices suffer largest annual drop in 14 years, warns Nationwide

In May, UK house prices experienced their most significant annual decline in almost 14 years, according to Nationwide. The building society reported a 3.4% drop in prices for the year to May, the largest decrease since July 2009. Nationwide also cautioned that further increases in mortgage interest rates could impact the housing market.

Mortgage rates have recently risen due to expectations that the Bank of England will need to increase interest rates once more to combat persistent high inflation. As a result, Nationwide stated that “headwinds to the housing market look set to strengthen in the near term.” Official figures released last week revealed that the UK inflation rate in April was 8.7%, a slower decline than anticipated. This has led analysts to predict that the Bank of England may need to raise interest rates from 4.5% to as high as 5.5% to curb price increases.

Following the inflation data, numerous lenders raised their mortgage interest rates, with Nationwide implementing the most significant increase of up to 0.45 percentage points. Earlier this week, data also showed that almost 10% of UK mortgage deals have been withdrawn from the market since last week.

Nationwide observed that interest rates are also expected to remain elevated for a more extended period. “If maintained, this is likely to exert renewed upward pressure on mortgage rates,” commented Robert Gardner, Nationwide’s chief economist.

In May, house prices fell by 0.1%, bringing the average property price to £260,736, Nationwide reported. Gardner also noted that average prices were still 4% below their August 2022 peak. However, he did not anticipate a dramatic downturn in the housing market, given that “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.”