UK House Prices Stall in June as Interest Rates Rise
UK house price growth stalled for a second consecutive month in June, as rising interest rates linked to the conflict in Iran dampened homebuyer demand. Estate agents have also warned of a potential summer slowdown in the housing market.
The average price of a typical UK home slightly decreased to £277,484 in June from £278,024 in May, according to lender Nationwide. This was below economists’ expectations, who had predicted a modest monthly increase of 0.1% for June.
“There is the familiar pre-summer push from families wanting to be settled before the new school year, but the mood is steady and selective rather than booming or stalling,”said Amy Reynolds, head of sales at London estate agency Antony Roberts.
“We expect a quieter, price-sensitive summer, with activity firming again in the autumn once buyers have more clarity on rates and the geopolitical noise has died down.”
Mortgage Rates Remain Elevated Despite Recent Oil Price Decline
Although mortgage rates have decreased slightly in recent weeks following a drop in oil prices, they remain significantly higher than before the Iran conflict began. On Tuesday, the average two-year fixed mortgage rate was 5.53%, up from 4.83% at the start of March, according to Moneyfacts. The average five-year fixed-rate mortgage also stood at 5.53%, rising from 4.95%.
“Nationwide’s figures reflect a softening housing market,”said Gareth Lewis, deputy chief executive of specialist lender MT Finance.
“We are seeing valuers cautious on value while buyers are looking for a steal and prepared to negotiate hard on price.”
Housebuilder Shares Decline Following Flat Price Growth
The second month in a row of stagnant house price growth, last seen in March and April 2022 according to Nationwide, negatively impacted shares in housebuilding companies. On Wednesday morning, Barratt and Redrow shares fell 1.6%, Persimmon shares dipped 0.5%, and Berkeley shares declined 1.4%.
Despite the monthly stagnation, Nationwide reported that on an annual basis, the price of a typical home increased by 2.2% in June, up from 1.7% in May. Additionally, data showed annual house price growth across all UK regions in the second quarter.
The strongest annual growth was recorded in Northern Ireland, where average home prices rose 8.6% year on year in Q2. Scotland and Wales both saw increases of 3.5%, while London prices edged up 1.6%.
Outlook on Interest Rates and Inflation
Robert Gardner, chief economist at Nationwide, suggested that falling oil prices could reduce the need for the Bank of England to raise interest rates as previously expected, potentially lowering mortgage costs. Brent crude was priced at $73 per barrel on Wednesday, down from higher levels earlier this year.
“If the energy shock continues to subside, the Bank of England may not need to raise interest rates, or at least by less than had previously been anticipated, a view reinforced by the fact that UK inflation has,”Gardner said.
“In recent weeks a shift in market expectations for the future path of Bank rate has helped to bring down the market interest rates which underpin fixed-rate mortgage pricing.”
