But housing economists say the government policies put in place to support businesses and workers should pave the way for the market to rebound.
Month on month, May house prices dropped by 1.7 per cent to £218,902 marking the sharpest monthly drop since February 2009, according to Nationwide’s House Price Index.
Annually house price growth slowed to 1.8 per cent from 3.7 per cent in April.
Over the medium term, Robert Gardner, Nationwide’s chief economist, said the outlook for property prices remained highly uncertain and the market’s fate was tied to how well the economy recovered.
He said: “The 5.9 per cent decline in UK economic activity recorded in March was only a little less than the decline recorded over the entire financial crisis.
“However, the raft of policies adopted to support the economy, including to protect businesses and jobs, to support peoples’ incomes and keep borrowing costs down, should set the stage for a rebound once the shock passes, and help limit long-term damage to the economy.
“These same measures should also help ensure the impact on the housing market will ultimately be less than would normally be associated with an economic shock of this magnitude.”
Nationwide’s analysis of a housing market in lockdown comes as the Bank of England reports April’s mortgage approvals for house purchases were 80 per down on February’s figures. HMRC’s data painted a similarly bleak but predictable picture last month when it reported a 53% fall in property transactions in April.
Despite the drastically reduced number of houses sold, Nationwide said it’s ability to generate a house price index has not yet been affected as transaction levels remain high enough to generate reliable results. However, gauging price trends over the coming months may be difficult particularly for regional indices, the building society warned.
Lockdown to impact the property market long term
Behavioural changes and social distancing are expected to impact the flow of housing transactions for some time.
A recent Nationwide survey found 12 per cent of the population had put off moving as a result of the lockdown but considered the current situation to be a temporary pause in the market. Would-be buyers said they had placed their plans on hold for an average of six months.
Buying habits also seem to have been affected by the pandemic.
Approximately 15 per cent of people surveyed said they were considering moving as a result of life in lockdown and a third said they now thought differently about their home, placing greater importance on having a garden and the need for more indoor space.