UK house prices continue to head lower

As mortgage rates creep higher, so home-ownership is starting to again become an aspiration only for many potential buyers.

By Stuart Cole | @Stuart Cole | 1 May 2024


The growing sense of pessimism in financial markets that central banks might not be able to cut interest rates as far nor as fast as previously thought is starting to infiltrate the real economy. And this is being seen in the UK this morning with the latest house price numbers from the Nationwide showing prices fell -0.4% in April, the second month in succession they have headed lower following the -0.2% fall seen in March.

The April fall was the fastest pace of decline in eight months and follows the steady creeping higher that has been seen in mortgage rates since the start of the year, as the markets have scaled back the degree of monetary easing the Bank of England will be able to deliver this year. The clear conclusion to be drawn is that this rise in mortgage rates – albeit only modest - is already starting to make property ownership unaffordable for some potential buyers, underscoring again the stretched nature of household budgets.

On a year-on-year basis, house prices rose by 0.6%, a sharp fall from the 1.6% figure reported in March. And with the March and April readings suggesting a downwards trend in house prices is emerging, the picture going forward is looking increasingly less bright. Clearly, where house prices go next will depend on the extent of market repricing of interest rate cuts, and if the current one-and-a-half cuts expected for this year is maintained – or even reduced further – then mortgage rates look set to continue creeping higher, in turn placing further downward pressure on house prices.

However, it is not all bad news. Forward looking indicators, such as the RICS Residential Market Survey, showed an improvement in the headline price balance to -4 in March, its strongest reading since Q4 2022, while the latest house price data from Rightmove showed prices rising 1.7% y/y in April, up from 0.8% in March. So, in the light of these figures, the Nationwide numbers need to be viewed cautiously. But the main determinant of house prices going forward will undoubtedly be what the BoE does regarding interest rates, and until these are lowered sufficiently to allow mortgage rates to start falling again, the ability of the housing market to recover from last year’s slump will remain strained.