House prices decline slightly in May but positive outlook predicted for the market, Nationwide data shows

House prices decline slightly in May but positive outlook predicted for the market, Nationwide HPI data shows

Here's what you need to know about house prices if you're thinking of buying or selling in 2023

In May, the housing market experienced a slight decline, with a 0.1% month-on-month fall in house prices, according to the latest Nationwide House Price Index (Image credit: Getty Images)

House prices fell month-on-month by 0.1% in May, according to the latest Nationwide House Price Index (HPI).

The update follows Rightmove's HPI figures last week, claiming house prices had reached a new average record price high of £372,894 with the average price of properties entering the market surging by 1.8% in the last month. This was equivalent to a £6,647 increase, it said.


Nationwide and Rightmove both anticipate a positive outlook for the housing market, provided that interest rates remain stable.

'How much is my house worth' will, of course, be at the forefront of all homeowner's minds— here's what you need to know about house prices in the UK.

Slight decline but positive outlook for market

The housing market experienced a slight decline in May with a 0.1% month-on-month fall, while the annual rate of house price growth also slipped back by 0.7% in April, according to Nationwide's HPI for May.

Robert Gardner, Nationwide's Chief Economist, commented on the figures, noted that the decrease in annual house price growth is largely attributed to prices remaining relatively flat over the month when accounting for seasonal effects. Despite this, average prices still remain 4% below their peak in August 2022.

“Following tentative signs of improvement in April, annual house price growth softened again in May. Recent Bank of England data had shown some signs of recovery in housing market activity, although the number of mortgages approved for house purchase in March was still around 20% below pre-pandemic levels, he said.

“Moreover, headwinds to the housing market look set to strengthen in the near term. While consumer price inflation did slow in April, it was a much smaller decline than most analysts had expected. As a result, investors’ expectations for the future path of Bank Rate increased noticeably in late May, suggesting it could peak at c5.5%, well above the c4.5% peak that was priced in around late March.

"Nevertheless, in our view a relatively soft landing remains the most likely outcome since 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, especially if mortgage rates moderate once Bank Rate peaks.”


Will house prices rise or fall in 2023?

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Housing affordability may be rising in the short term but this is expected to change over the course of 2023, according to Nationwide.

Robert Gardner claimed: “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."

In addition to this, Rightmove claims that while there is increased price confidence in the lower and middle market segments, there are some indications of excessive optimism in the top-tier luxury property sector.

It appears that certain discretionary buyers (potential buyers who have the luxury of choice) are exercising caution and refraining from making immediate purchasing decisions.

This is evidenced by a 1% decrease in buyer demand for top-of-the-ladder properties compared to 2019 levels, according to data from Rightmove. In contrast, the second-stepper sector demonstrates a robust demand, surpassing 2019 levels by 3%.

House prices could affect those looking to buy and sell in 2023 (Image credit: Getty Images)

Despite a recent increase in the Bank of England base rate, average mortgage rates have remained stable. Notably, the average 5-year fixed mortgage, requiring a 15% deposit, currently stands at 4.56%.

This is lower than the 5.89% rate recorded last October by Rightmove. The steady mortgage rates offer further encouragement to potential buyers, facilitating affordable borrowing in the face of market price fluctuations.

Industry experts remain cautiously optimistic about the future trajectory of the property market as although housing market activity is expected to stay relatively low in the short term, rising incomes and modest house prices should result in greater affordability for individuals and families to enter the housing market or upgrade to a better property.

Additionally, if mortgage rates moderate or decrease once the Bank Rate (the interest rate set by the central bank) reaches its peak, it could further enhance affordability by reducing the cost of borrowing for home buyers, according to Robert Gardner.

What does this mean for those wanting to sell?

The number of potential buyers reaching out to agents regarding homes for sale has increased by 3% compared to the same period in 2019, which was a more typical market environment, according to Rightmove.

This growth in buyer inquiries is predominantly driven by the first-time buyer and second-stepper sectors, with demand in these segments surpassing pre-pandemic levels by 6% and 3% respectively.


However, there are indications of over-optimism in the top-of-the-ladder sector, where prices have been rising the fastest this month, despite a 1% lower buyer demand compared to pre-pandemic levels.

The record-breaking prices witnessed this month strongly indicate sellers' confidence in the market, according to Tim Bannister, Rightmove's Director of Property Science.

He suggests this confidence is substantiated by the activity levels and the limited availability of properties for sale, particularly in certain segments of the market. At the top end, sellers with more discretion may be inclined to set higher prices and wait for the right buyer.

However, he also states: "More discretionary sellers at the top-end may be prepared to price high and wait for the right buyer, and whilst it is positive that they appear to feel no financial pressure to sell, the data suggests that some sellers in this sector will need to price more competitively if they want to find a buyer in the current market".

I’m buying/selling a house, what do I need to know?

Rightmove's data show that although properties in the largest-homes sector are still selling at a faster pace than in 2019, the average time it takes to secure a sale has increased significantly. Currently, it takes an average of 67 days to agree on a sale in this sector, nearly double the 35-day average at the same time last year.

This increase in time taken to find a buyer is most pronounced in the second-stepper properties, which now require an average of 52 days compared to 28 days last year, and first-time buyer properties, which now take 53 days, up from 35 days a year ago.

Additionally, the recent slowdown in consumer price inflation was not as significant as anticipated, leading to increased expectations for future Bank Rate increases, according to Nationwide.

This suggests that the peak Bank Rate could reach around 5.5%, higher than the previously expected peak of around 4.5%. As a result, mortgage rates could rise, potentially dampening housing market activity.

For buyers, the stamp duty cut announced within the mini-budget in September 2022 means that the threshold for stamp duty exemption in England and Northern Ireland has been lifted from £125,000 to £250,000.

For first-time buyers, who previously paid no stamp duty on the first £300,000, that figure has gone to £425,000.

By Joseph Mullane Contributions from Jack Woodfield  https://www.homebuilding.co.uk/news/house-prices