Nationwide warns housing market could be hit by higher interest rates
The housing market could be hit by higher interest rates according to Nationwide – after house prices in the year to May fell.
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Nationwide has warned that the housing market could be hit by higher interest rates. This news comes after house prices in the year to May fell by 3.4%.
This was a bigger decline than the month before, which saw house prices drop by 2.7%. Interest rates are forecast to rise even further because of stubbornly high inflation, according to the Bank of England.
Nationwide said: “Headwinds to the housing market look set to strengthen in the near term”. Last week, official figures showed the UK inflation rate slowed in April by less than expected to 8.7%. The inflation rate in the UK charts rising prices.
A range of lenders have since increased mortgage interest rates, with Nationwide having the most significant rise of up to 0.45 percentage points. Nearly 10% of UK mortgage deals have been taken off the market since last week in figures from earlier this week.
Nationwide noted interest rates are projected to remain higher for longer. Robert Gardner, chief economist for Nationwide, said: “If maintained, this is likely to exert renewed upward pressure on mortgage rates.”
Average price of UK property
Nationwide revealed house prices edged down by 0.1% in May. The average property price is now £260,736.
Mr Gardner said average prices were still 4% below the August 2022 peak. Nationwide is not expecting a dramatic downturn in the housing market.
Mr Gardner said: “Labour market conditions remain solid and household balance sheets appear in relatively good shape. While activity is likely to remain subdued in the near term, healthy rates of nominal income growth, together with modestly lower house prices, should help to improve housing affordability over time.”