Economic growth is likely to be “somewhat weaker” with higher inflation than previously projected because of geo-political tensions in the Middle East, according to Nationwide Building Society in its latest appraisal of the UK housing market.
The house price index reveals current market conditions have surprised the lender, given a weakening of consumer confidence. “Despite the uncertainty caused by developments in the Middle East and the subsequent rise in energy prices, the UK housing market has continued to regain momentum following the slowdown recorded around the turn of the year,” Nationwide’s chief economist Robert Gardner said.
He pointed to sentiment shared by The Royal Institution of Chartered Surveyors which showed a “sharp fall” in new buyer enquiries in March and resulted in the lowest reading since 2023, and the UK GfK Consumer Confidence Index, which has dropped to its lowest levels since October 2023, as evidence of a fall in confidence.
But the relative strength of household finances, with household debt is at its lowest level relative to income for around two decades, and “sizeable savings buffers” built up in recent years, could be protecting the housing market, Gardner explained. Although the latest tracker shows annual house price growth picked up to 3.0% in April, from 2.2% in March, “housing affordability had been improving steadily in recent years due to a combination of income growth outpacing house price growth by a wide margin and a modest decline in mortgage rates.”
He added: “While market interest rates have risen in recent months, the impact on affordability has so far been limited. Indeed, swap rates, which underpin fixed rate mortgage pricing, remain well below the highs reached in 2023 and are broadly in line with levels prevailing in late 2024, implying only a partial reversal of earlier gains.”
As a result, the property market remains reasonably resilient, Gardner warns there is likely to be some pain ahead depending on the duration of the current crisis in the Middle East and any government policy response.
Concluding, he said: “The UK economy and housing market have proved remarkably resilient in recent years. This provides some confidence that, if the latest shock passes relatively quickly, and energy prices normalise in the quarters ahead, any near-term softening in the housing market will also prove short lived.”
Commenting on Nationwide’s figures, Verona Frankish, CEO of Yopa, said any comparison with now and this time last year must be tempered with the rush to secure stamp duty savings ahead of the end of March 2025 deadline. “Despite the rate of monthly house price growth slowing, property values remain higher than both this time last month and when compared to this time last year… what we’re seeing now isn’t weakness, but a return to more sustainable conditions. With mortgage rates trending in the right direction over the longer term, this should continue to support stability as the year progresses.”
Jason Tebb, president of OnTheMarket, said: “Despite the challenging economic backdrop, the housing market continues to demonstrate the resilience it has become known for. Average prices edged up slightly as focused buyers are price-sensitive and negotiating hard, while sellers realise that they will struggle to sell over-priced homes.
“Those who need to move are continuing to transact and will be buoyed by lenders trimming their mortgage rates in recent days. The Bank of England’s decision to hold interest rates for another month should also have a steadying effect on momentum in the market, suggesting stability and no need to panic.
“Increased stock, as sellers try to take advantage of what is usually a busier spring market, is giving buyers more choice than has been the case for a while and this should help keep prices in check.”
