Why are house prices still so ruinous despite rollercoaster rises stalling in April?

Nationwide’s seasonally adjusted House Price Index fell this month after a series of record highs, writes James Moore. Most forecasters expect growth to return later in the year. But are they right?

House prices fell in April when compared to March and the annual growth rate slowed (PA) (PA Wire)

There was some blessed relief for people trying to buy their first home in April as the runaway housing market train finally hit the buffers.

Nationwide’s latest House Price Index (HPI) recorded a small, seasonally adjusted, 0.6 per cent decline when compared to March. In terms of real money – and do note that this figure is not seasonally adjusted – the average British home sold eased down to £270,752 from £271,316.

That is still higher than this time last year. But the pace of growth on an annual basis, at 3.4 per cent when compared to April 2024, was slower than in the 12 months to March (3.9 per cent).

It has been quite the rollercoaster for those in the game, by which I mean people buying and/or selling and not the sharp-suited estate agents whom they engage.

My editor kindly sent me a picture featuring some headlines from the past few months. They spoke breathlessly of records broken and growth at the fastest pace in two years, which is all very exciting for those sitting on a treasure chest and thinking of cashing in.

So why has it come to a juddering halt? Stamp duty, mainly. There was a rush to get deals done in March ahead of the hike imposed by Rachel Reeves. Cash-strapped chancellors love stamp duty because just about the only way to avoid it is to get in quick before the hammer falls. Given the state of public finances, Reeves may increase it again in September.

April was bound to be slow with the extra tax now due and Robert Gardner, chief economist for Nationwide, thinks that the market will stay soft before picking up again later in the summer.

Matt Thompson, head of sales at estate agent Chestertons, is also eyeing that season with hungry eyes, telling me: “We expect market activity and particularly buyer demand to pick up in early May which will lead to a busier than usual summer market. ”

Nationwide has reported the annual rate of house price growth slowed to 3.4% in April (PA) (PA Wire)

The economic backdrop may not be pretty. But, as Gardner points out, unemployment remains low, even with job vacancies in long-term decline, while earnings have been consistently beating inflation.

Best of all, for buyers, is that mortgage rates are down. The interest rate swaps market, which governs the price of fixed rate deals, is anticipating that Bank of England base rates will fall faster and remain lower for longer than was the feeling before Donald Trump decided to lob a hand grenade into the middle of the global trading system.

With lenders finding it cheaper to secure financing for the mortgages they offer, they’ve been passing the savings on. It is now possible to find deals below four per cent, although you need a low loan to value – typically 60 per cent – to qualify. These aren’t deals for first-time buyers unless you’re lucky enough to have a branch of the Bank of Mum & Dad LLC willing to front a truly stupendous deposit.

When set against that, even the Trump-inspired chaos chilling an already less-than-healthy UK economy mightn’t spoil the party that Chestertons, Nationwide and most other forecasters are expecting to get started later in the year.

At this point, you’ve probably guessed that there is a “but” coming. And you would be right. Taylor Wimpey CEO Jennie Daly noted what she called “the ongoing affordability challenges for some of our customers, particularly in the south of England” in the group’s latest trading update.

You can almost hear the collective “no kidding!” from those currently perusing estate agents’ boards. Housing costs in Britain are, to put it simply, horrible. And Daly is quite right: a lot of people are struggling with their mortgages, especially those who recently came off the deals available when base rates were near zero.

Raising a deposit presents a real struggle for young people without wealthy parents. I’ve also been watching banks reporting rising levels of bad debt. Yes, multiple things are feeding into this; non-performing loans to businesses facing tough trading conditions in particular. But what this may serve to do is to cool their ardour when it comes to offering hot mortgage rates by reducing their appetite for risk and causing them to take steps to protect their margins.

The housing market is still crazy. Home ownership is a dream for a large number of people and they will do what it takes to make it come true, going without to fund their repayments when things get tight.

But there are reasons for thinking the market might tread water for longer than people expect. While I’ve been wrong before, and I’m out of step with most of the forecasters who think that rollercoaster is poised to race up the hill at pace, I think this is quite possible.

House prices are too high for people to afford. They need to come down.