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UK house price growth slows as property market shows signs of cooling

house price Pedestrians walk past a row of houses in London, Britain June 3, 2015. British house prices rose at their slowest annual rate in nearly two years in May, as growth continued to moderate after double-digit increases in the middle of 2014, figures from mortgage lender Nationwide showed on Wednesday. REUTERS/Suzanne Plunkett
Nationwide said the strength of house prices had been surprising, fuelled by demand outstripping the supply of homes coming to the market. Photo: Suzanne Plunkett/Reuters (Suzanne Plunkett / reuters)

The average house price in the UK recorded a double digit jump to £269,914 in May but the cost of living crisis is likely to cool down the housing market, mortgage lender Nationwide said.

May saw “a slight slowing” in the rate of annual house price growth. Prices were 11.2% higher than a year ago, down from 12.1% in April.

But they rose by 0.9% month-on-month in May after a 0.4% rise in April, marking a 10th consecutive month of gains. It means properties, on average, have grown nearly £2,300 more expensive in just one month.

Robert Gardner, Nationwide’s chief economist, said the housing market has shown a surprising amount of momentum in the face of rising inflation and interest rates.


But a slowdown is looming, he said, as consumer confidence is hit by the cost of living squeeze.

Read more: Is this the beginning of the end for rising house prices?

“Demand is being supported by strong labour market conditions, where the unemployment rate has fallen towards 50-year lows, and with the number of job vacancies at a record high.

“At the same time, the stock of homes on the market has remained low, keeping upward pressure on house prices.”

Gardner added that the hot property market is expected to cool down as the year goes on, with onlookers saying the cost of living crisis will inevitably weigh on rising house prices.

“Household finances are likely to remain under pressure with inflation set to reach double digits in the coming quarters if global energy prices remain high,” he said. “Measures of consumer confidence have already fallen towards record lows.

“Moreover, the Bank of England is widely expected to raise interest rates further, which will also exert a cooling impact on the market if this feeds through to mortgage rates.”

The Bank of England reported that the number of mortgages approved by UK lenders had dropped to its lowest since June 2020 which could be a sign the housing market is cooling.

Less than 66,000 mortgages were approved in April, down from 69,531 in March and 73,220 back in January.

Read more: Property: Urban appeal of city centre homes

Nicky Stevenson, managing director at national estate agent group Fine & Country, reported that the housing market is being hit by the cost of living crisis.

“Annual price gains are finally beginning to decelerate as challenges in the broader economy start to filter through to the housing market,” she said.

“Many households are struggling amid the deepening cost of living crisis and it was only a matter of time before we saw a knock-on effect in price growth.”

Alice Haine, personal finance analyst at Bestinvest, said: “Throw in the cost of living squeeze — with inflation at 9% in April and expectations it will hit 10% later in the year — and it’s only natural to speculate that less people may choose to hop onto the property ladder going forward as budgets get placed under severe pressure and consumer confidence dips.

“Whether that leads to a market crash, or more of a gradual slowdown, is uncertain for now, but affordability will be the issue going forward.”

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “We’re not expecting a blight to strike the market, because right now, demand is still outstripping supply, which is likely to keep prices from falling.

Read more: UK mortgage approvals fall to lowest level since June 2020

“However, over the coming months, we’re likely to see buyers take their time, exercise a bit more caution, and house price rises to slow significantly.”

Double digit price rises during the pandemic had exaggerated a decades-long trend of property values outstripping inflation and wage growth, Nationwide added.

In 1952, the year the Queen came to the throne, the average house price was £1,891 — around £62,000 in today’s money — and cost four times average earnings.

This means current average house prices are 4.3 times higher than 1952 levels in real terms.

Many people are looking to improve their homes in order to make them more energy efficient in a move to cut down energy bills.

Gardner said: “Our recent housing market survey revealed that, as well as more people looking to move, over half (54%) of those surveyed are considering enhancing their home.

“The most popular option for those looking to make improvements was to add or maximise space, with more than a third (37%) citing this as a motivating factor.

Read more: Property: Average UK home hits £250,000 for first time despite slowdown signs

“Interestingly, 29% of those surveyed wanted to improve energy efficiency or reduce the carbon footprint of their home.

“This consideration has become increasingly relevant in light of surging energy costs.”

Watch: Will UK house prices ever fall?