House price growth has been in double digits since November last year, reaching a high of 14.3% annual growth in February. It has been falling gradually since then, according to Nationwide’s latest house price index.

It added that the monthly change in June was 0.3%, down from 0.9% in May.

The average UK house price reached a high of £271,613, representing a rise of over £26,000 in just over a year.

The South West was the strongest performing region in Q2, with prices increasing 14.7% year-on-year. This was followed by East Anglia where annual house price growth was estimated at 14.2%, and Wales where growth was pegged at 13.4%.

London reported the lowest growth at 6% in Q2.

Nationwide found that since the start of the pandemic, house prices in the South West have risen by 27.7%, followed by Wales at 26.2%, and the North West at 25.8%.

It suggested this could reflect a change in house preferences as people moved to less urban areas.

Robert Gardner, Nationwide’s chief economist, said there were “tentative signs of a slowdown” as the number of mortgages approved for house purchase fell back toward pre-pandemic levels in April and surveyors reported a softening in new buyer enquiries.

He said: “Nevertheless, the housing market has retained a surprising amount of momentum given the mounting pressure on household budgets from high inflation, which has already driven consumer confidence to a record low.”

Gardner added part of the sector’s resilience was likely due to strength of the labour market, where job vacancies have exceeded the number of unemployed people in recent months and unemployment was close to 50-year lows.

He said low housing supply had also further fuelled house price growth.

“The market is expected to slow further as pressure on household finances intensifies in the coming quarters, with inflation expected to reach double digits towards the end of the year. Moreover, the Bank of England is widely expected to raise interest rates further, which will also exert a cooling impact on the market if this feeds through to mortgage rates,” Gardner explained.

Cost-of-living crisis biggest challenge for housing market yet

Charlotte Nixon, mortgage expert at Quilter, said soaring inflation, which is expected to reach double digits later this year, the rising cost of living, increasing energy bills and “minimal” government support had led people to tighten their belts.

She said what started as a “pinch” had become a “heavy burden” for a growing number of households. Along with rising interest rates, people’s spending power would be reduced, and cheap mortgage rates would continue to disappear.

“With wages failing to keep up, the high costs of moving home will put off prospective buyers, and first-time buyers will see their hopes of getting a foot on the property ladder pushed further out of reach,” she said.

Nixon added the fall in demand could lead to a price reversal in the autumn as the energy crisis becomes more acute and temperatures fall.

“The UK is facing a severe financial problem and while the housing market managed to defy expectations and overcome the immediate problems of the pandemic, the cost-of-living crisis will be its biggest challenge yet,” she said.

Guy Harrington, chief executive of Glenhawk, said another month of slowing growth was a “precursor to the sharp correction about to torpedo the UK housing market”, which is caused by a “perfect storm” of inflation, geopolitical turmoil, rising interest rates and the cost-of-living crisis.

“It’s absolute madness to think house prices will keep on rising. As caution grips the market, the outlook for 2023 looks increasingly ominous.”

Mark Harris, chief executive of SPF Private Clients, said while “some of the heat has come out of the market”, especially as quieter summer months approach, there were plenty of people still keen to move.

However, he said interest rate rises may “temper the ambitions of some as to what they can afford”.

Harris explained: “What has changed for all borrowers is the rate environment – gone are the sub-one per cent deals available nine months ago. Now, mortgage products are in the three to four per cent range depending on their length and loan to value.

“These rates available today reflect not only the increase in cost of funds but also lenders’ desire to moderate volumes, with many of the high street banks still sitting on large balances or even cheap Bank of England funds. Specialist lenders are repricing upwards and or streamlining their product ranges, meaning borrowers need to move quickly to secure rates.”