According to a closely watched measure, UK house prices have experienced a decline in growth due to shifting expectations for interest rate cuts. Nationwide, one of the UK’s largest lenders, reported a 0.4% decrease in average property costs in April compared to March. This has resulted in a decrease in the annual rate of growth, from 1.6% to 0.6%. Economists polled by Reuters had anticipated a lower month-on-month growth of 0.2%.
The report from Nationwide stated that this decline can be attributed to “ongoing affordability pressures”. This includes the recent increase in longer-term interest rates, which have risen in the past few months after a steep decline at the beginning of the year.
The rise in fixed-rate mortgage deals can also be attributed to market expectations that the Bank of England will not cut interest rates as early as previously anticipated. The financial information service Moneyfacts reported that the average two-year fixed residential mortgage rate is now at 5.9%, up from 5.87% last Friday. The average five-year rate is also nearing 5.5%, reflecting the increasing borrowing costs for lenders.
This change in market expectations comes after the Bank of England signaled that it will not be cutting interest rates until August. Previously, there were bets on a rate cut in May. However, the Bank has expressed concerns about the outlook for inflation and the high pace of wage growth, leading to a delay in any potential rate cuts.
Nationwide’s chief economist, Robert Gardner, commented on the continuing pressure on buyers caused by the high cost of living. This has resulted in many prospective first-time buyers delaying their purchase plans, according to a recent survey conducted by Censuswide on behalf of Nationwide. Gardner stated that nearly half of prospective first-time buyers (49%) have delayed their plans in the past year, with high house prices and mortgage costs being the main reasons cited. Additionally, 84% of these buyers reported that the cost of living has affected their ability to save for a deposit.
