New warning of house price shocks after the summer

A leading analyst says the most recent house price index - released just before the weekend - is a sign that there may be a substantial market drop in the autumn.

Average house prices edged down in May according to the Nationwide, falling 0.1 per cent last month after an unexpected monthly rise of 0.4 per cent in April. Compared with May last year, the average house price is down 3.4 per cent.

The Nationwide says people should be braced for further falls if interest rates rise yet again, and now Sarah Coles, head of personal finance at business consultancy Hargreaves Lansdown, says the same.

“House prices fell back very slightly in May, but this is a drop in the ocean compared to the flood of bad news that may lie in store if mortgage rates continue rising. The change in May is largely due to the seasonal adjustment - because prices were broadly flat. What matters is what comes next” she says.

“Confidence had been slowly building in the property market this spring, as buyers and sellers convinced themselves that the horrors of inflation could be coming to an end, and that mortgage rates might continue to fall. However, higher core inflation figures raised expectations that interest rates may have to keep rising, which forced hundreds of  mortgage products to be withdrawn from the market, and major lenders to hike rates. It may well have brought confidence crashing down.

“This isn’t going to be a repeat of the horrors we saw in the aftermath of the mini-budget. The market hasn’t been rocked to anything like the same extent. There’s also the chance that it has overreacted, and rate expectations start to fall back. However, we're likely to see mortgage rates move higher in the immediate future.

“We’re unlikely to see an overnight impact, because people still have mortgages in their back pockets, but we can expect this to filter through into less demand, lower sales, and weaker prices.”

Coles says there are still some positives to cling onto. 

The Bank of England data shows mortgage approvals picked up in both February and March, so there are more buyers around, who are already armed with mortgage agreements. However, to put this into perspective, approvals were still 20 per cent below pre-pandemic levels. Meanwhile, jobs data still shows robust employment numbers, with an unemployment rate of 3.9 per cent in March. 

But Coles concludes: “If you’re on the hunt for a home right now, it’s still well worth pushing for a good deal, to build yourself a cushion if prices fall further in the months ahead.”

Want to comment on this story? Our focus is on providing a platform for you to share your insights and views and we welcome contributions.
If any post is considered to victimise, harass, degrade or intimidate an individual or group of individuals, then the post may be deleted and the individual immediately banned from posting in future.
Please help us by reporting comments you consider to be unduly offensive so we can review and take action if necessary. Thank you.