UK house prices experienced a notable decline in April, marking the sharpest drop since last summer, as rising mortgage rates constrained the purchasing power of prospective buyers.

According to Nationwide, the high street lender, house prices retreated by 0.4 per cent last month, marking the second consecutive monthly fall and the largest decline recorded since August 2023. Despite this decline, prices remain marginally higher, standing 0.6 per cent above last year’s levels.

Robert Gardner, Nationwide’s chief economist, attributes the slowdown to ongoing affordability pressures, driven by the recent increase in longer-term interest rates, which have reversed the significant fall witnessed around the turn of the year.

The April downturn surprised economists, who had anticipated a modest 0.2 per cent price rise. Expectations for a slight decline in the annual inflation rate to 1.2 per cent were also surpassed, with March’s rate standing at 1.6 per cent.

Nationwide estimates the average UK house price at £261,962, still approximately 4 per cent below the peak observed in the summer of 2022. However, prospective buyers continue to grapple with affordability challenges, particularly as mortgage costs have surged compared to 18 months ago.

The winter saw a sharp decline in mortgage rates, anticipating Bank of England interest rate cuts. However, the uncertainty surrounding the timing of these cuts, amidst persistent inflation and high employment levels, has led lenders to raise prices in recent weeks. First-time buyers, in particular, face significant hurdles, with the average rate for a two-year fixed, 95 per cent loan-to-value mortgage surpassing 6 per cent for the first time since November.

Research conducted by Censuswide on behalf of Nationwide reveals that half of prospective first-time buyers who planned to move in the past year have postponed their plans. High house prices, elevated mortgage rates, and additional homebuying costs were cited as primary reasons for the delay.

The impact of the rising cost of living further compounds the challenge, with many individuals unable to save as much as they had hoped towards a deposit. Most respondents have less than £10,000 saved, falling short of the £22,000 typically required for a 10 per cent deposit on a first-time buyer home.

Imogen Pattison, assistant economist at Capital Economics, anticipates improved affordability in the coming months, potentially leading to a rebound in house prices. However, she notes that sustained mortgage rate stability will likely keep demand subdued in the near term. Pattison predicts a modest increase in house prices, should interest rates be cut further than anticipated, potentially reaching a 3 per cent year-on-year growth by the end of 2024.

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UK House Prices Decline for Second Consecutive Month Amidst Rising Mortgage Rates