Tuesday 2 June 2020 9:18 am

UK house prices tumble at fastest rate since 2009 amid coronavirus

UK house prices dropped at the fastest rate since the financial crisis in February 2009 last month, figures have shown, as the coronavirus pandemic brought the property market to a standstill.

House prices tumbled by 1.7 per cent in May compared to growth of 0.9 per cent a month earlier, according to the closely watched Nationwide house price index.

Read more: How badly will coronavirus hit UK house prices in 2020?

The fall took the annual rate of growth for UK house prices to 1.8 per cent in May from 3.7 per cent in April, Nationwide said.

The figures came as the UK continues to lift its coronavirus lockdown, which has been in place since March. Last month, the government said construction sites could open if it were safe to do so, along with factories.

But the outlook for the housing market remains highly uncertain, said Robert Gardner, Nationwide’s chief economist. 

“Behavioural changes and social distancing are likely to impact the flow of housing transactions for some time,” he said.

Gardner said that would-be buyers are “now planning to wait six months on average before looking to enter the market”.

The drop in May took the average UK house price to £218,902, Nationwide said. That compared to £222,915 in April.

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That will please first-time buyers, although many will have seen reductions in their wages. But it will worry homeowners and speculators.

Many analysts say that UK house prices are inevitably heading for a sharp fall this year. Consumer confidence has dropped to levels not seen since the financial crisis, when house prices plunged. However, banks are currently in much better shape to lend.

UK house prices could drop by five per cent

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said May’s house prices fall is “surely is just the start of a protracted decline over the remainder of this year”.

“The huge size of the blow from Covid-19 to households’ incomes and the deterioration in consumers’ confidence suggests that house prices must drop,” he said. “We look for a five per cent decline in prices by the end of the third quarter.”

The housing market has had some relief in recent weeks with the lifting of parts of the coronavirus restrictions. 

Read more: UK households gloomy about finances as coronavirus crisis hits home

Property website Zoopla said there was an 88 per cent increase in buyer enquiries when restrictions on house viewings were lifted in the middle of May. Yet new sales agreed were only up by 13 per cent from a low base.

Marc von Grundherr, director of London estate agency Benham and Reeves, said: “Portal sites are reporting high levels of traffic, enquiries, viewings and sales.” He said the fall in prices is likely to be “a blip”.

Government support schemes could help the market

Yet Howard Archer, chief economic adviser for the EY Item Club, said he agreed with Tombs about UK house prices. “The EY Item Club suspects house prices could fall back five per cent over the next few months,” he said.

“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,” Archer said.

“Many people have already lost their jobs, despite the supportive government measures.” He added: “Others will be worried that they may still end up losing theirs once the furlough scheme ends.”

Mortgage activity has also declined sharply, Nationwide said today. That chimed with the latest figures that show one in seven UK mortgages are now subject to a “holiday”, with banks offering 1.6m mortgage breaks to customers impacted by Covid-19.

Nonetheless, Gardner said that government support schemes were likely to help support UK house prices over the longer term.

Read more: UK coronavirus deaths have smallest one-day increase since start of lockdown

He pointed to “the raft of policies adopted to support the economy, including to protect businesses and jobs, to support peoples’ incomes and keep borrowing costs down”. 

He said these “should set the stage for a rebound once the shock passes, and help limit long-term damage to the economy”.