The annual rate of house price growth has slipped further into negative territory, falling back to -3.4% in May, according to the latest Nationwide House Price Index.

This latest figure followed -2.7% in April, a month that had shown “tentative signs of improvement” in the market, Nationwide said.

However, the latest softening in price growth leaves the average UK house price now standing at £260,736.

Nationwide suggested this latest price change largely reflects base effects with prices broadly flat over the month, after taking account of seasonal effects. The average value of a UK house remains 4% below its August 2022 peak.

“Recent Bank of England data had shown some signs of recovery in housing market activity, although the number of mortgages approved for house purchase in March was still around 20% below pre-pandemic levels,” said chief economist at Nationwide, Robert Gardner.

“Moreover, headwinds to the housing market look set to strengthen in the near-term. While consumer price inflation did slow in April, it was a much smaller decline than most analysts had expected.

“As a result, investors’ expectations for the future path of bank rate increased noticeably in late May, suggesting it could peak at c5.5%, well above the c4.5% peak that was priced in around late March. Furthermore, rates are also projected to remain higher for longer.”

Gardner added that if these rates are maintained, this is likely to exert “renewed upward pressure” on mortgage rates, which had been trending down after spiking in the wake of the government’s mini-Budget in September last year.

“Nevertheless, in our view a relatively soft landing remains the most likely outcome since labour market conditions remain solid and household balance sheets appear in relatively good shape,” he added.

“While activity is likely to remain subdued in the near term, healthy rates of nominal income growth, together with modestly lower house prices, should help to improve housing affordability over time, especially if mortgage rates moderate once bank rate peaks.”

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