The property market appears to have stalled in April and May, with official data showing a dip in house prices and mortgage approvals.
The latest Nationwide House Price Index for May suggests average values fell 0.1% on a monthly basis and slipped 3.4% annually - the sharpest drop in 14 years.
That compares with a 0.4% monthly rise in April and a 2.7% annual decline.
April’s data had prompted Nationwide to claim that the impact of last year’s mini-Budget was fading.
Commenting on the figures, Robert Gardner, Nationwide's chief economist, said: “Following tentative signs of improvement in April, annual house price growth softened again in May.
“However, this largely reflects base effects with prices broadly flat over the month after taking account of seasonal effects. Average prices remain 4% below their August 2022 peak.
“Recent Bank of England data had shown some signs of recovery in housing market activity, although the number of mortgages approved for house purchase in March was still around 20% below pre-pandemic levels.”
He suggested more headwinds are on their way, with renewed predictions of interest rates hitting 5.5% due to inflation remaining higher than expected.
Gardner added: “If maintained, this is likely to exert renewed upward pressure on mortgage rates, which had been trending down after spiking in the wake of the mini-Budget in September last year.
“Nevertheless, in our view a relatively soft landing remains the most likely outcome since labour market conditions remain solid and household balance sheets appear in relatively good shape.
Meanwhile, Bank of England data shows the value of mortgage borrowing hit its lowest level on record during April with net repayments of £1.4bn,
The level of mortgage approvals also dopped from 51,488 in March to 48,690 in April.
That is down 5.4% on a monthly basis and 26% annually.
Karen Noye, mortgage expert at Quilter, said the figures suggest the housing market is freezing up at a time when property transactions should be flowing nicely.
She said: “The outlook for the housing market is somewhat bleak as we head into the summer months.
“Despite the more secure economic footing, and the fact a recession seems to have been avoided for now, the path of interest rates remains extremely uncertain.
“We are expecting the Bank of England to have to raise rates again at is next meeting, and with inflation refusing to come down more quickly it is not out of the realms of possibility that further rises later in the year will be required. Clearly interest rates are having a significant effect on the housing market.”
Jason Tebb, chief executive of OnTheMarket, added: “The Bank of England figures suggest that there is some caution among buyers in light of consecutive interest rate rises and the high cost of living.
“Disappointing inflation figures, which while still falling are not doing so as fast as expected, could mean another interest rate rise may be on the cards at this month’s Monetary Policy Committee meeting.
“While some may put their move on hold until the picture becomes clearer, there are those who need to get on with the business of moving. Sellers can achieve a successful outcome as long as they take advice from an experienced local agent and price realistically.”