British house prices increased at a slower-than-expected annual pace in June, although easing expectations for future Bank of England interest rate rises are expected to improve mortgage affordability and support the housing market.
According to Nationwide, annual house price growth reached 2.2% in June, below economists’ expectations of 2.4%. On a monthly basis, prices were unchanged following an unexpected 0.6% decline recorded in May.
Mortgage borrowing costs have risen since the outbreak of the Iran conflict in late February, slowing the strong momentum seen in the UK housing market earlier this year and prompting expectations that the Bank of England would need to keep interest rates higher to control inflation.
“It is not surprising that the market has softened a little in recent months, given the uncertainty caused by developments in the Middle East and the subsequent rise in energy prices and market interest rates,” Robert Gardner, Nationwide’s chief economist, said.
“If the energy shock continues to subside, the Bank of England may not need to raise interest rates, or at least by less than had previously been anticipated.”
Data released by the Bank of England earlier this week showed mortgage approvals for house purchases fell by the largest amount since December 2023 during May, reflecting weaker buyer demand.
The central bank left interest rates unchanged at 3.75% in June, while financial markets now expect the next quarter-point increase in the Bank Rate to come in early 2027.
Nationwide said that if current market trends continue, improving affordability and greater household confidence could help support a recovery in housing market activity over the coming quarters, provided domestic political uncertainty does not significantly affect consumer sentiment.
Prime Minister Keir Starmer, who announced last week that he intends to resign, has continued to prioritise increasing housing supply, although a shortage of homes available for sale is expected to keep upward pressure on property prices.
Meanwhile, Andy Burnham, widely expected to become Britain’s next prime minister, has pledged to deliver the country’s largest local authority-led social housebuilding programme since the years following the Second World War.
