House prices grew by an average 0.1% in June, bringing annual growth down to -3.5%, according to Nationwide. However, recent challenges in the mortgage markets and rising levels of supply make future falls more likely, broadly in line with our forecasts.

Market activity remained stable but rising mortgage rates are yet to have their full impact. The number of mortgage approvals in May rose to 57,106, up from 46,359 in April, according to the Bank of England. However, this still remained -23.9% below their pre-covid average as the market adjusts to changing interest rates. Rising mortgage rates in June are likely to further suppress the number of future approvals.

Completed transactions also remained stable in May but were still down -22.8% compared to their 2017-19 average, according to HMRC. These are likely to fall further as low mortgage approvals continue to feed through into completion figures.

The majority of surveyors reported increased supply for the first time since early 2022, according to the RICS May survey. The majority continued to report falling demand. This increase of supply relative to demand will put downward pressure on prices.

Mortgage rates have risen to similar levels in the wake of the mini-budget last year. This is due to inflation remaining higher for longer than lenders had priced in. Oxford Economics now expect the base rate to peak at 5.75% and remain there until the first cut in Q4 2024. Inflation has been partially driven by strong wage growth, but this growth has also served to support market activity in the face of increasingly stretched affordability.

This will constrain buying power and continue to dampen activity in the coming months. The greatest pressure is on first-time buyers and those re-mortgaging with high loan-to-value mortgages, with cash buyers largely immune to the high rate environment. The measures announced by the government on the 23^rd June will allow extensions to mortgage terms, transition to interest-only mortgages for six months, and a twelve month break before any repossession proceedings start. These will limit the impact caused by any forced sales on housing supply.

Annual house price growth in March was strongest in Bromsgrove in Worcestershire, up 13.8%. Hammersmith and Fulham joined Aberdeen as the only two local authorities with annual house price falls, at -1.1% and -2.6% respectively.

Annual rental growth across the UK remained high at 10.4% in May, increasing by 0.2% month-on-month. All regions except London and Scotland saw rental growth accelerate on an annual basis. Wales had the highest growth this month, up 1.1%, according to Zoopla, bringing its post-pandemic growth since March 2020 to 28.4%.