UK house prices experienced a larger-than-anticipated drop in May, reflecting ongoing economic pressures and uncertainty in the housing market. According to Halifax, the average property price fell by 0.4% from April, reaching £296,648.
This decline follows a period of relative stability and represents the most significant monthly decrease in several months, surpassing the modest 0.1% drop economists had forecasted.
While the monthly figures are concerning, the broader picture remains mixed. Despite the fall in prices, the annual growth rate remains positive, though it has slowed to 2.5%, a sharp drop from the previous month’s growth of 3.2%.
The continuing uncertainty over interest rates, inflation, and the cost of living has cast a shadow over the housing market, which is now feeling the effects of several months of shifting conditions.
Stamp Duty Changes and Market Slowdown
The economic landscape for UK homebuyers and sellers has been heavily shaped by recent changes in stamp duty. In April, the government raised property transaction taxes in England and Northern Ireland, which led to a surge in transactions in the preceding months.
As Amanda Bryden, head of mortgages at Halifax, explained, the housing market absorbed the temporary surge of activity generated by the rush to complete purchases before the tax hikes. However, as this effect wanes, the market is now grappling with a slowdown in activity, which was further evidenced by the recent price dip.
Recent data also highlights a decline in mortgage approvals, a key indicator of future market activity. According to figures from the Bank of England, mortgage approvals fell for the third consecutive month in April, with 60,500 new approvals, a drop from the previous month.
This signals weaker demand for new home purchases and suggests that buyer sentiment remains cautious as the broader economic outlook remains uncertain.
Economic Uncertainty and Housing Market Resilience
Despite these challenges, the UK housing market has shown signs of resilience, according to experts. While the immediate future remains uncertain, many analysts believe that the broader housing market could stabilise if economic conditions improve.
The outlook is largely dependent on the pace of potential interest rate cuts, alongside income growth and inflationary trends. Some economists predict that a reduction in interest rates could bring some relief to buyers and sellers alike, though the timing of such changes remains unclear.
As Jeremy Leaf, a London-based estate agent, noted :
“The significant number of purchases brought forward to take advantage of the stamp duty holiday ending in March is still having a negative impact on activity now. Most of the stock made available at that time, if not sold or under offer, is still available so the inevitable result is a softening in prices. However, sales are still proceeding where buyers and sellers are most realistic.”
