The Nationwide house price index showed that average prices also fell by 0.6% compared to the previous month. This was compared to a monthly growth of 0.4% in April.
Loss of momentum in the housing market was expected
Robert Gardner, chief economist at Nationwide, said this was the first monthly decline this year, adding: “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.”
Gardner noted that consumer confidence had weakened, with the GfK index falling to its lowest level since the end of 2023.
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.
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“There has been some positive news, in that the UK economy entered this shock on a slightly stronger footing than expected. 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.”
Gardner said economic growth was likely to be weaker and inflation would be higher than previously expected, but the impact would depend on how long the shock lasts and the policy response.
He said the UK economy and housing market had remained “remarkably resilient in recent years”, and household finances were “solid”.
“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,” Gardner said.
He added that although market interest rates had risen, the impact on affordability had been modest so far.
Gardner said: “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.”
Buyers seeking the right price
Gareth Lewis, deputy CEO of MT Finance, said: “Values are under pressure and a significant volume are coming in lower than anticipated.
“Nationwide’s figures reflect a softening housing market. From a lending perspective, we are seeing surveyors cautious on value while buyers are looking for a steal and prepared to negotiate on price.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Falling monthly house prices suggest needs-based buyers are not willing to pay over-the-odds for a property but are negotiating hard.
“Lenders continue to cut their mortgage rates, and the steadiness from the Bank of England in holding base rate should lead to a period of calm after much volatility.
“Borrowers are taking nothing for granted as the continued high cost of living strains affordability. Many are taking the sensible approach of securing mortgage rates in advance of when needed for peace of mind. Others are keen to proceed with already-reserved rates while they have them.”
Tom Bill, head of UK residential research at Knight Frank, said this was further evidence that the housing market slowed down at the time of year when momentum should be building.
Bill added: “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.”
Today, Savills revised its forecast for house prices this year, suggesting there would be a 2% fall in values.
