House prices fell by -0.8% in June on a seasonally adjusted basis, according to Nationwide. This was the biggest monthly fall since the period following the 2022 mini-budget, and leaves values down -0.6% since the start of the year. They are still up 2.1% on a 12 month basis however. Only two regions saw value growth during Q2: Scotland and the North East, up 0.8% and 0.4% respectively. The weakest performing regions were the West Midlands (-1.7%) and East Anglia (-1.3%).

Price growth is weaker than we expected, and comes despite improving affordability. Falling Mortgage rates have made it easier to buy a home, despite this, confidence in the housing market remains fragile. While the Monetary Policy Committee held rates at 4.25% in June, there is an expectation that rates will continue to trend downwards with two further cuts this year expected by Oxford Economics, ending the year at 3.75%. Many lenders have already priced in these cuts and some are offering sub-4% mortgages, although these lower-rates still require a significant deposit and fee.

The weaker than expected performance in the housing market is partially a consequence of a weak labour market, with unemployment rising to 4.6% in April, according the ONS, the highest rate in almost 4 years. The ONS estimates that number of people on payrolls fell by 55,000 in April. This weakness is primally driven by employers responding to increased NI contributions and a higher minimum wage, both of which came into force in April.

Value falls are also driven by a supply/demand imbalance as the latest RICS survey continues to show the majority of surveyors reporting falls in the number of new enquiries and rising levels of new instructions to sell. This limited demand is forcing sellers to be increasingly pragmatic.  

Overall activity metrics also remain somewhat muted following the lowering of SDLT thresholds, with completions in May (the second month after the change to SDLT thresholds) still 16% lower than the 2017-19 average for the month. This was an improvement from the 35% below typical activity in the previous month – previous analysis of ours shows it typically takes 2-3 months for the market to recover from such SDLT changes. Next months data will help confirm whether we are following this typical pattern.

Forward activity metrics point to a slower recovery with the number of sales agreed in June dropping to 5% below 2017-19 levels for that month – the lowest figure in a year, according to TwentyCI. And while mortgage approval numbers did tick up in May, they still were 5% lower than the 2017-19 average for the month.

Localised but more lagged house price data from Land Registry shows the greatest annual value growth concentrated in Scottish and Northern local authorities, with Northern Lanarkshire seeing the largest growth in the year to March, up 9.8%, followed by Clackmannanshire (8.4%) and Newcastle upon Tyne (8.7%). While most of the weaker performing authorities were in the south, the largest annual fall was in Aberdeen (-3.9%) followed by Torridge (-3.8%) and Kensington and Chelsea (-3.3%).