UK house prices fall for first time this year as north-south divide widens

The UK housing market has recorded its first monthly fall of the year, in a sign that the long boom in property values is finally losing momentum. According to Nationwide's index, prices dropped by 0.6 per cent in May, three times the decline analysts had expected and the clearest indication yet that buyers are pushing back against stretched affordability.

The picture across the main indices is one of a market that is slowing rather than crashing. Nationwide put annual growth at 1.7 per cent, with the average property valued at around £278,000, while Halifax reported a softer annual rise of 0.5 per cent and a higher average price of close to £299,000. The difference in figures reflects the different methods the lenders use, but both point the same way: growth is fading.

Beneath the national averages lies a striking geographical split. The south of England, where prices are highest and affordability is most stretched, is leading the declines, while northern regions and the devolved nations are still seeing values rise. The result is a widening north-south divide that is reshaping the map of the UK property market.

A tale of two markets

The regional contrast is stark. The South East led the declines, with prices down around 2.1 per cent over the year to an average of roughly £383,000, while London saw average values fall by about 1.5 per cent to around £534,000. Coastal towns and prime central London have been among the weakest spots, with prices flat or falling.

At the other end of the country the story is reversed. The North East recorded annual growth of around 3.1 per cent to an average of about £182,000, while the North West saw values rise roughly 3.0 per cent. Northern Ireland, Scotland and Wales have also been growing at well above the national average, helped by relatively lower prices that leave more room for buyers to stretch.

Analysts say the divide is largely a function of affordability. In the most expensive markets, prices have simply run too far ahead of incomes, leaving little headroom for further gains, whereas in cheaper regions there is still scope for values to climb before buyers are priced out.

“The least affordable markets are now seeing the sharpest corrections, while more affordable regions still have room to grow. That is the engine behind the widening divide.”

— Property market analyst commenting on the May data

Which homes are holding up

The type of property is proving as important as its location. Semi-detached houses have emerged as the strongest performers, rising around 2.5 per cent over the past year as buyers prioritise space and family-friendly layouts. Flats and maisonettes, by contrast, are the only category falling nationally, down about 1.3 per cent year-on-year.

The weakness in flats reflects a combination of factors, from continued caution over service charges and building-safety costs to a preference for homes with gardens that took hold during the pandemic and has not fully faded. For first-time buyers, the softness in the flat market may offer a rare opening, even as the overall picture remains challenging.

• Nationwide reported a 0.6 per cent monthly fall in May, the first drop of the year
• Annual growth stood at 1.7 per cent (Nationwide) and 0.5 per cent (Halifax)
• The South East led declines, down around 2.1 per cent year-on-year
• The North East rose about 3.1 per cent, the strongest regional performance
• Semi-detached homes rose around 2.5 per cent; flats fell about 1.3 per cent

Background

House prices surged in the years following the pandemic, driven by low borrowing costs and a scramble for space. The subsequent rise in interest rates squeezed affordability sharply, cooling demand and slowing transactions. The market has since been searching for a new equilibrium, with values broadly flat-lining rather than tumbling.

Forecasters have warned that prices could fall by around 2 per cent over the year as a whole, with the deepest declines concentrated in the least affordable areas. Much will depend on the path of interest rates and on how confident buyers feel about their jobs and the wider economy.

What it means for buyers and sellers is a more balanced market than the frenzy of recent years. Sellers in the south may need to accept lower offers and longer waits, while buyers gain more choice and bargaining power. In the north and the devolved nations, by contrast, competition for homes remains firmer, a reminder that there is no longer a single UK housing market but several moving in different directions at once.