UK house prices edged up unexpectedly between May and June, but annual prices fell at the fastest rate since 2009 as soaring mortgage costs took a toll on the market, according to Nationwide building society.

The surprise monthly rise of 0.1% reversed a 0.1% fall in May and confounded economist forecasts of a 0.3% fall. It pushed the average cost of a house in the UK up slightly to £262,239.

Compared with June last year, house prices were down 3.5%, largely unchanged from the 3.4% recorded a month earlier.

“The sharp increase in borrowing costs is likely to exert a significant drag on housing market activity in the near term,” said Robert Gardner, the chief economist of Nationwide. “Longer-term borrowing costs have risen to levels similar to those prevailing in the wake of the mini-budget last year but this has yet to have the same negative impact on sentiment.”

Industry reactions:

Iain McKenzie, CEO of The Guild of Property Professionals, said: “While house prices are down year on year, they are holding steady now in the face of tougher market conditions, which should provide some much-needed reassurance to buyers and sellers alike.

“A levelling out of prices will be welcome news to homeowners who have seen their property’s value soften in the first half of this year.

“Interestingly, Northern Ireland is outperforming any other region of the UK on house prices, showing not only resilience but also continuing annual growth.

“This confidence is reflected in what we are seeing on the ground, with the majority of potential buyers hoping to get on the property ladder in the next few months. Despite worries regarding mortgage rates, only 7% of people we surveyed are worried that this may affect their ability to secure one.

“Affordability is a big hurdle right now, and people may be hesitant to sign up to a mortgage without the certainty that they can afford the repayments, especially after the fixed period ends.

“As inflation crawls down, interest rates will hopefully come down too, which will provide respite for those on a variable rate mortgage that have seen their monthly repayments rocket recently. When rates eventually fall, we should also see more competitive mortgage products up for grabs.”

Jason Tebb, Chief Executive Officer of property search website OnTheMarket, commented: “Annual house price growth, while declining in June, remains broadly stable, and while borrowing costs have risen as they did in the autumn, Nationwide reports that sentiment hasn’t been impacted in the same way.

Consecutive interest rate rises, with the potential for more to come and combined with the high cost of living mean borrowers are less able to pay inflated prices, even if previously they may have been prepared to.

With offers regularly being made below asking price, sellers must price realistically in the first instance as those who do so are most likely to achieve a timely sale.”

Jonathan Hopper, CEO of Garrington Property Finders, commented: “With rapidly rising interest rates thinning the number of determined buyers, those who remain are finding that the market is tilting ever further in their favour.

“It has been a buyer’s market for some months as prices cooled and sellers became increasingly willing to accept below asking price offers from committed, proceedable buyers.

“While the Nationwide’s data shows that average prices held largely steady in June, on the front-line we’re starting to see a shift in pricing behaviour.

“As the summer slowdown approaches, some pragmatic sellers are recalibrating their aspirations by cutting prices pre-emptively to get ahead of the market, rather than slicing off thousands in response to a low offer.

“In some areas double-digit price reductions are now not uncommon, with regions that saw the frothiest excesses during the boom, as well as those with high levels of Help to Buy ownership, seeing some of the sharpest price falls.

“For many sellers this will be a bitter pill to swallow, albeit one that is preferable to the limbo of having their home sit unsold for months before they cut the price anyway.

“Meanwhile on the buyer side, the number of first-time buyers is shrivelling, and transaction values are likely to fall faster than prices over summer.

“Strategic and cash-rich buyers who are less fazed by soaring interest rates are likely to form the core contingent of buyers, attracted by the compelling opportunities to be had and willing to take a longer-term view, rather than worrying about how prices might move over the next month or two.”

James Forrester, MD of Barrows and Forrester, said: “Borrowing costs have risen significantly in recent months but while they may have reached similar levels to those that followed last September’s shambolic mini budget, the market isn’t feeling the same degree of strain and buyer activity is building, albeit at a more measured pace.”

Chris Hodgkinson, MD of House Buyer Bureau, commented: “For those looking to sell, current market conditions are a tad hit and miss. We’ve seen fluctuating levels of buyer demand in recent months and, with house prices continuing to stutter due to a reduction in buyer purchasing power, many sellers are also unwilling to commit.

“The result is more time spent on the market, while those that do secure a buyer are subject to longer transaction times and a heightened chance that their sale will fail to make the finish line.”

Tom Bill, head of UK residential research at Knight Frank, said: “While we are still playing the guessing game of how much higher the Bank of England will push rates, sentiment in the housing market will remain weak. Buyers find it difficult to plan as budgets get recalculated and there is uncertainty over what happens next to property values, which means sensitivity around asking prices has become acute.

“Prices will come under growing pressure given how much higher mortgage costs are compared to 18 months ago and we expect a 10% decline, spread over this year and 2024. When stability returns, we think demand will prove more resilient than expected given the cushioning effect of strong wage growth, record levels of housing equity, amassed lockdown savings, the availability of longer mortgage terms, forbearance from lenders and the popularity of fixed-rate deals in recent years.”

Marc von Grundherr, director of Benham and Reeves, commented: “Higher interest rates are causing an increased level of unpredictability and the nation’s homebuyers don’t know whether they’re coming or going at present. This is evident when it comes to current house price performance, with property values remaining largely unchanged from one month to the next.”