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Annual house price growth picks up to 1.3% in May

Annual house price growth picks up to 1.3% in May
Anna Sagar
Written By:
Anna Sagar
Posted:
31/05/2024
Updated:
31/05/2024

Annual house price growth in May rose to 1.3%, up from 0.6% in April, with the market “showing signs of resilience”.

According to Nationwide’s House Price Index, UK house prices increased by 0.4% in May, which compares to a fall of 0.4% in April.

The average house price in May stood at £264,249, a rise from £261,962 in April.

Robert Gardner, Nationwide’s chief economist, said: “The market appears to be showing signs of resilience in the face of ongoing affordability pressures following the rise in longer-term interest rates in recent months. Consumer confidence has improved noticeably over the last few months, supported by solid wage gains and lower inflation.”

He said that, following the announcement of the general election last week, the firm had analysed house price movements around previous elections as well as the 2016 EU referendum.

Gardner said that past general elections “do not appear to have generated volatility in house prices or resulted in a significant change in house price trends”.

“On the whole, prevailing trends have been maintained just before, during and after UK general elections. Broader economic trends appear to dominate any immediate election-related impacts,” he added.

Regarding house purchase mortgage approvals, Gardner said the “picture is less clear, but again there doesn’t seem to be any tangible impact in the three months either side of a general election”.

He added: “2019 is a notable exception, but this was due to the impact of the pandemic, with the initial lockdown in 2020 suppressing housing market activity. Activity subsequently bounced back once restrictions began to be lifted.

“It appears that housing market trends have not traditionally been impacted around the time of general elections. Rightly or wrongly, for most homebuyers, elections are not foremost in their minds while buying or selling property.”

Election ‘unlikely to make a material difference to house prices’

Anna Clare Harper, CEO of sustainable investment adviser GreenResi, said that the house price increase “will be seen as positive news for many” as it is a “reflector and reflection of confidence”.

She noted that elections “make investors and aspiring homeowners nervous”, but said that the “results of the election are unlikely to make a material difference to house prices”.

“This is for two reasons. Firstly, the fundamentals won’t change: need continues to outstrip supply for housing as a result of population growth, and the UK’s legal framework and enforcement remains attractive internationally, meaning the market is stable and trusted.

“Secondly, while there may be policies that affect pricing for a small proportion of homes, both parties offer similar approaches. The objective is confidence during their political term, buoyed by house prices,” Harper explained.

She said that, consequently, “fears of dramatic change” post-election are “overblown” and the biggest issue is “nerves and inaction in the run-up – so homeowners considering a sale, aspiring homeowners and investors alike will be pleased that the run-up to the election is not too long”.

Housing market showing ‘considerable resilience’ but affordability still an issue

Karen Noye, mortgage expert at Quilter, said that the latest results show that the housing market has “considerable resilience in the face of tough economic conditions”.

“This is likely in part due to the annual spring bounce as more buyers come to market, making it more competitive. However, on an annual basis, prices have increased by 1.3%. The slight uptick suggests some stability, albeit under challenging conditions,” she noted.

Noye said that while that data shows a “modestly positive trend”, the housing market “remains very unpredictable and the growth in house prices is modest”, adding that the monthly property transactions have been lower than expected, indicating a “cautious market”.

“Affordability remains a significant challenge, particularly for first-time buyers who face rising mortgage rates and the ongoing pressures of living costs. The dearth of these buyers makes it tricky for the market to operate due to incomplete chains.

“The volatility of mortgage rates, driven by expectations of a longer period before interest rate cuts by the Bank of England, continues to dampen market activity. This environment makes it harder for new buyers to save for deposits and secure affordable mortgage deals,” she added.

Noye said that the elections added a “layer of unpredictability”, but it is “unlikely” that it will change too many home buying plans.

“The broader economic factors such as interest and continued lower inflation are more likely to influence buying decisions in the short term. Current Prime Minister Rishi Sunak is setting himself up as the candidate to bring lower interest rates, but the reality is we are already on that trajectory given the recent inflation print. However, it is one area where he can play to a younger voter base after courting the grey vote with the promise never to tax state pensions.

“Attention now turns to the Bank of England’s upcoming monetary policy decision and what it intonates as a plan for the rest of the year. While no immediate changes in interest rates are expected, a future cut could provide a much-needed boost to the housing market. Lower borrowing costs would likely stimulate demand, as many prospective buyers are currently waiting for more favourable conditions,” she concluded.

Related: House prices to be ‘kept in check’ by eight-year supply high