Press release

2 Jun 2020 London, GB

UK house prices fell back 1.7% month-on-month in May with year-on-year increase down to 1.8% – EY ITEM Club comments

The Nationwide reported house prices fell back 1.7% month-on-month in May. This was actually the first monthly drop on the Nationwide measure since last September and the largest since February 2009.

Press contact

Annabel Banks

EY UK&I Media Relations Manager

A highly experienced communications professional with cross-sector experience in media relations having worked with global brands spanning elite professional services firms to digital start-ups.

Related topics Growth
  • The Nationwide reported house prices fell back 1.7% month-on-month in May. This was the first monthly drop on the Nationwide measure since last September and the largest since February 2009. The annual rate of increase more than halved to a five-month low of 1.8% in May from 3.7% in April (which had been the highest since February 2017)
  • May marked the first time that the coronavirus impact on the housing market had been reflected in the Nationwide house price index
  • The early-2020 upturn in the housing market had been brought to a halt by the impact of coronavirus on the economy, households and people’s movements. Indeed, the housing market was essentially at a standstill from late-March through to mid-May, following the lockdown introduced on 23 March
  • Relief for the housing market in England has come from an easing of restrictions on 13 May
  • Survey evidence suggests that the mid-May easing of housing market restrictions in England caused an initial surge in buyer interest and activity. Nevertheless, there are uncertainties over how the housing market is likely to develop over the coming months
  • Despite the easing of restrictions on the housing market, the EY ITEM Club suspects that the upside to activity may be limited for some to come
  • Consequently, the EY ITEM Club suspects house prices could fall back 5% over the next few months
  • Housing market activity is likely to be limited in the near term at least by the impact of coronavirus on the economy and the fact that consumer fundamentals appear to have taken a downturn
  • The EY ITEM Club expects house prices to stabilise towards the end of the year and then start recovering gradually as the UK’s economic recovery gains traction, the labour market starts to recover and consumer confidence improves. Very low borrowing costs should also help matters with the Bank of England unlikely to lift interest rates from 0.10% until well into 2021. Even so, the EY ITEM Club expects house price gains to be no more than 2-3% in 2021

Howard Archer, chief economic advisor to the EY ITEM Club, comments:

The Nationwide reported house prices fell back 1.7% month-on-month in May. This was actually the first monthly drop on the Nationwide measure since last September and the largest since February 2009.

The annual rate of increase more than halved to a five-month low of 1.8% in May from 3.7% in April, which had been the highest since February 2017 and up from an eight-month low of just 0.2% in September.

House prices on the Nationwide measure had previously risen 0.9% month-on-month in April (the sharpest monthly rise since June 2017), which followed a gain of 0.8% in March. Significantly, Nationwide had observed that the impact of the coronavirus pandemic was not fully captured in its April data. This is because its index is constructed using mortgage approval data, and there is a lag between mortgage applications being submitted and approved. Specifically, the Nationwide reported that around 80% of cases in its April sample relate to mortgage applications that commenced prior to the lockdown, and hence before the full extent of the impact of the pandemic became clear.

Early 2020 housing market improvement came to a standstill in late March through to mid-May due to coronavirus restrictions

The housing market was essentially at a standstill from late-March through to mid-May as the Government advised homebuyers and renters to delay moving as much as they could while the emergency measures were in place. The lockdown introduced on 23 March meant that no visitors were allowed to visit properties while “stay-at-home” measures were fully in force, including estate agents and surveys as well as potential buyers.

The Bank of England shows mortgage approvals for house purchases fell back to 56,161 in March (the lowest since March 2013) from a more than six-year high of 73,674 in February (the most since January 2014). Mortgage approvals for house purchases had previously risen from 71,430 in January, 68,143 in December and a 5-month low of 65,344 in October.

Data out shortly is expected to show a further falling back in mortgage approvals in April.

The April RICS survey reported that its findings “suggest that the government’s ongoing lockdown measures to prevent the spread of the coronavirus are continuing to stifle activity across the housing market. With estate agents still closed in April, key activity indicators remain entrenched in negative territory.” Specifically, the survey showed record low balances for instructions to sell (-96%), newly agreed sales (-92%) and new buyer enquiries (-93%).

Prior to March, the housing market had enjoyed a markedly improved performance over the first couple of months of 2020 and at the end of 2019 as it benefitted from increased consumer confidence and reduced uncertainties following December's General Election.

Relief for England’s housing market

Relief for the housing market in England has come from an easing of restrictions on 13 May under which buyers and renters can once again view properties physically, arrange removals and move home. However, viewers must keep a two-metre distance from others, wear gloves where necessary, while also keeping high-risk owners out of the home during a viewing.

Zoopla reported that there was an 88% rise in buyer enquiries after the housing market restrictions were lifted in England, although new sales agreed were up by a lesser 12%.

Outlook for housing market

The EY ITEM Club suspects house prices could fall back 5% over the next few months.

Despite the easing of restrictions on the housing market, we suspect that the upside to activity may be limited for some to come.

Indeed, a survey by Zoopla found that 41% of those asked had put moving plans on hold owing to the uncertainty, loss of income, or future prospects for their finances.

Additionally, Nationwide reported “our recent market research survey suggested that c12% of the population had put off moving as a result of the lockdown. Most viewed the current situation as a temporary pause in the market, with would-be buyers now planning to wait six months on average before looking to enter the market.

Housing market activity is likely to be limited in the near term at least by the impact of coronavirus on the economy and the fact that consumer fundamentals appear to have taken a downturn. Many people have already lost their jobs, despite the supportive Government measures, while others will be worried that they may still end up losing theirs once the furlough scheme ends. Additionally, many incomes have been affected. Consumer confidence is currently at or near record low levels and many people are likely to remain cautious for some time to come when making major spending decisions such as buying or moving house.

The EY ITEM Club expects house prices to stabilise towards the end of the year and then start recovering gradually as the UK’s economic recovery gains traction, the labour market starts to recover and consumer confidence improves. Very low borrowing costs should also help matters with the Bank of England unlikely to lift interest rates from 0.10% until well into 2021. Even so, we expect house price gains to be no more than 2-3% in 2021.