Britain's housing market lost momentum in June, with property prices holding steady from the previous month as higher borrowing costs weighed on demand. However, easing expectations
for future interest rate increases are improving the outlook for homebuyers, according to mortgage lender Nationwide.
Nationwide reported on Wednesday that average UK house prices increased 2.2% year-on-year in June, falling short of economists' expectations for a 2.4% rise. On a monthly basis, prices were unchanged after an unexpected 0.6% decline in May.
The slowdown follows a period of rising mortgage costs triggered by heightened geopolitical tensions in the Middle East earlier this year. The conflict pushed up energy prices and market interest rates, fueling speculation that the Bank of England would need to tighten monetary policy further to contain inflation.
"It is not surprising that the market has softened slightly in recent months, given the uncertainty created by developments in the Middle East and the resulting increase in energy prices and market interest rates," said Robert Gardner, Nationwide's chief economist.
Gardner noted that if energy market pressures continue to ease, the Bank of England may avoid additional rate increases or implement fewer hikes than previously expected.
Recent data from the central bank supports signs of a cooling market. The Bank of England said on Monday that mortgage approvals for house purchases fell in May by the largest margin since December 2023. The central bank kept its benchmark interest rate unchanged at 3.75% in June, while financial markets now expect the first quarter-point rate increase to come in early 2027.
According to Gardner, a more stable interest rate environment could gradually improve affordability and restore buyer confidence.
"If these trends continue, they should help rebuild household confidence and reduce affordability pressures, supporting a recovery in housing market activity over the coming quarters, provided domestic political uncertainty does not undermine sentiment," he said.
Despite the recent slowdown, limited housing supply is expected to keep upward pressure on prices. Prime Minister Keir Starmer, who announced last week that he intends to resign, has sought to accelerate housebuilding to address the shortage.
Meanwhile, Andy Burnham, widely viewed as the frontrunner to succeed Starmer, pledged on Monday to launch Britain's largest local authority-led social housing construction programme since the years immediately following World War II.
