This is the first monthly fall in the mortgage lender’s house price index this year and means annual growth has slowed too. A typical UK property increased in value by 1.7% in May compared to 3% in April meaning the average property price is now £278,024.
Robert Gardner, chief economist at Nationwide said: “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.”
He added: “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.”
How house prices will fare going forward depends, he said, on what happens in the Middle East.
“While market interest rates have risen in recent months, Gardner said, “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.”
The impact of mortgage rates
There is still much uncertainty around mortgage rates. Whilst they increased considerably at the peak of the conflict in Iran, they since come down a little. However, experts believe there are likely to be increases to interest rates before the end of the year.
Ian Futcher, financial planner at Quilter, said: “Mortgage rates will continue to dictate the pace of the market in the months ahead.
“Swap rates are heavily influenced by global developments, and without a clear resolution to current tensions there is a risk they could edge higher again. For those looking to buy or remortgage, rates are no longer rising sharply, but nor is there a clear path downwards.
“In this environment, reviewing options early and keeping flexibility, ideally with the support of a mortgage adviser, will put borrowers in a stronger position as the market continues to adjust.”