House price fall now ‘unavoidable’ as growth slows again

House price falls are likely to be “unavoidable”, experts have warned, after property market growth slowed for the third month in a row.

Prices rose by 10.7pc in the year to June, down from a rate of 11.2pc in May, according to Nationwide building society.

Property prices climbed by just 0.3pc month-on-month, a third of the 0.9pc average recorded over the previous 12 months, as rising interest rates crippled home buyers.

Gabriella Dickens, of Pantheon Macroeconomics, a research group, said: “Looking ahead, we now think that a fall in house prices is pretty much unavoidable given the recent jump in mortgage rates.”

The rate for a two-year fixed-rate 25pc deposit mortgage rose from 1.53pc in November to 2.63pc in May, the fastest increase over a six month period since 2003. This means a typical buyer now has to pay an extra £1,980 in mortgage bills compared to the end of last year.

Pantheon said it expected the average mortgage rate to rise to 3.2pc in July, which will cost the average borrower an extra £150 per month. House prices will fall by 2pc in the next six months, it said.

Imogen Sporle, of Finanze, a mortgage broker, said: “I am fully subscribed to the idea of house prices crashing soon. Whether the full crash happens in 2022 or shortly after, I am not sure, but it’s coming. Demand in the property market will cool due to painfully high inflation.”

Robert Gardner, of Nationwide, said: “There are tentative signs of a slowdown, with the number of mortgages approved for house purchases falling back towards pre-pandemic levels in April and surveyors reporting some softening in new buyer enquiries.”

But the housing market so far has retained a surprising amount of momentum considering the drag of high inflation and plunging consumer confidence, Mr Gardner said.

Although the growth rate slowed in June, house prices still hit a new record high of £271,613 – £26,000 more than they cost a year ago. The strength of the labour market and a shortage of homes for sale have so far underpinned property values, Mr Gardner said.

He said: “The market is expected to slow further as pressure on households' finances intensifies in the coming quarters, with inflation expected to reach double digits towards the end of the year.”

The South West recorded the highest house price growth in the country in June, with prices up 14.7pc compared to last year. Since the start of the pandemic, prices in the region have increased 27.7pc.

London recorded the most sluggish growth in the country at 6pc, down from 7.4pc at the start of the year. Values in the capital have climbed by 14.9pc since Covid hit.