UK house prices return to growth in May

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UK house prices returned to growth in May on the back of strengthening consumer confidence, according to data published on Friday.

The lender Nationwide said house prices increased by 0.4 per cent between April and May, following two consecutive months of decline, taking the annual rate of growth to 1.3 per cent.

Robert Gardner, Nationwide’s chief economist, said the market was “showing signs of resilience” despite the rise in quoted mortgage rates in recent months as hopes of an imminent interest rate cut from the Bank of England faded.

Investors are now betting that the central bank will cut interest rates only once in 2024 as inflation has proved stickier than expected, falling by less than expected to 2.3 per cent last month. The BoE’s benchmark interest rate currently stands at a 16-year high of 5.25 per cent.

The interest rate quoted on a typical two-year fixed-rate mortgage fell to 4.73 per cent in January but has risen back to 5 per cent in recent weeks, limiting the scope for the housing market to recover.

Andrew Wishart, analyst at the consultancy Capital Economics, said the big picture remained one of a stagnant market that was unlikely to regain momentum until the BoE began loosening monetary policy.

“Taking a step back, house prices have been flat for a year and a half, with the slight increase in May leaving them in line with their January 2023 level,” he said.

Wishart added that prices could slip “modestly” in the next few months, given signs that more homes were coming up for sale and mortgage rates were still high.

Rob Wood, chief UK economist at the consultancy Pantheon Macroeconomics, said higher borrowing costs had “slowed the housing market but not derailed it”.

The general election in July is unlikely to prevent a recovery in prices given Nationwide’s analysis of house price movements before and after previous polls, according to Gardner.

“Past general elections do not appear to have generated volatility in house prices or resulted in a significant change . . . Broader economic trends appeared to dominate any immediate election-related impacts,” he said, adding that it was less clear whether activity might be affected.

There was a sharp slowdown in the number of mortgage approvals in the run-up to Labour’s 1997 election victory, as well as a pandemic-related slump immediately after the 2019 election.