UK house prices have defied expectations by growing slightly in June but annual prices fell at the fastest rate since 2009 as soaring mortgage costs took a toll on the market, according to Nationwide building society.
The surprise monthly rise of 0.1% reversed a 0.1% fall in May and confounded economist forecasts of a 0.3% fall. It pushed the average cost of a house in the UK up slightly to £262,239.
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Prices were 3.5% lower in June compared with a year earlier, the sharpest rate of decline since 2009 but a smaller annual drop than the 4% fall predicted by economists.
Two-year fixed-rate mortgage rates have continued to climb past 6% after the Bank of England increased interest rates by half a point to 5% in June in an attempt to curb stubbornly high inflation. The average two-year fixed deal edged higher again on Friday, to 6.39% from 6.37% the day before, according to Moneyfacts. The average five-year fix rose to 5.96% from 5.94%.
The high rates are putting pressure on the ability of prospective homeowners to buy properties, with signs it is also starting to force some sellers to accept lower offers, according to Zoopla.
A line graph showing the average UK house price over the past 25 years
“The sharp increase in borrowing costs is likely to exert a significant drag on housing market activity in the near term,” said Robert Gardner, the chief economist of Nationwide. “Longer-term borrowing costs have risen to levels similar to those prevailing in the wake of the mini-budget last year but this has yet to have the same negative impact on sentiment.”
Gardner noted that mortgage payments as a share of take-home pay were well above the historical average, and prospective buyers were also finding it increasingly difficult to save as the cost of living crisis continued to hammer household finances.
“Despite the higher interest rates available to savers, the sharp rise in rents, together with continued high rates of inflation more generally, is continuing to make it difficult for many prospective buyers to save for a deposit,” he said. “Nevertheless, a relatively soft landing is still possible, providing the broader economy performs as we (and most other forecasters) expect.”
Signs of the increasingly faltering housing market in the short term were highlighted by the latest HM Revenue and Customs figures, which showed home sales fell by 27% year on year in May.
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There were 80,020 completed transactions in May, a 3% drop on April, according to a HMRC release on Friday. The report said the decline was partly due to extra bank holidays last month, but also pointed to a “decline in general market conditions in recent months”.
Jeremy Leaf, a north London estate agent and a former residential chair of the Royal Institution of Chartered Surveyors, said: “Transactions always provide a more accurate reflection of market health than property prices. Mortgage upheaval and inflation concerns have meant fewer buyers and more protracted negotiations, which is resulting in fewer transactions.”
Nationwide’s data showed annual house price declines in all regions except Northern Ireland, which showed growth of 0.7%. The weakest performing region in June was East Anglia, where house prices were down 7.4% year on year.
Gareth Lewis, the managing director of the property lender MT Finance, said: “Properties are taking longer to sell. Before they wouldn’t be on the market for long, now they are sitting there for a reasonable period of time while buyers get their ducks in the row from a mortgage perspective. More people are wondering whether they are buying at the top of the market. It’s easy to turn around and question whether you should be doing it now.”
