Annual house price growth has slowed sharply and May recorded the first monthly fall of 2026. But Nationwide's chief economist points to solid household finances, resilient GDP and contained swap rates as reasons to believe any softening will prove short-lived
At first glance, the Nationwide House Price Index for May makes uncomfortable reading. Annual growth slowed to 1.7 per cent — down sharply from 3.0 per cent in April — and prices fell by 0.6 per cent month on month after seasonal adjustment, the first monthly decline recorded so far this year. The average UK house price now stands at £278,024, marginally below April's £278,880.
Yet Robert Gardner, Nationwide's chief economist, was at pains to set those numbers in context. While some loss of momentum was, in his words, to be expected given the uncertainty triggered by the Middle East conflict and the subsequent rise in energy prices and market interest rates, Gardner pointed to a series of structural supports that he believes will limit the damage — and potentially reverse it relatively quickly should the geopolitical shock pass.
For mortgage professionals, the distinction between a cyclical softening and a structural collapse matters enormously. Nationwide's analysis suggests firmly the former.
The Headline Numbers
- UK average house price (May 2026, not seasonally adjusted): £278,024
- Monthly change (seasonally adjusted): −0.6% — the first monthly fall of 2026
- Annual change: 1.7%, down from 3.0% in April
- Three-month on three-month change: +1.3%, still positive and up from +1.1% in April
- Average price one year ago (May 2025): £273,427 — a £4,597 gain year-on-year
That three-month on three-month measure deserves particular attention. It smooths out monthly volatility and remains positive at +1.3 per cent — the figure brokers should perhaps lead with when reassuring clients who have been unsettled by the headline numbers.
Why Gardner Sees a Silver Lining
The bullish case rests on four pillars, all articulated directly by Gardner in Nationwide's commentary.
First, the economy entered this shock from a position of strength. GDP grew by 0.6 per cent quarter on quarter in the first three months of 2026, outperforming forecasts and underpinned by broad-based gains across services, construction and production. That matters because it means the labour market entered the current period of uncertainty in good health, which in turn supports mortgage affordability at the household level.
Second, household finances are in unusually robust shape. Gardner notes that total household debt relative to income stands at its lowest level for around two decades, and that sizeable savings buffers have been accumulated in recent years — though he is careful to acknowledge these are not evenly distributed. For mortgage brokers, this translates into a client base that is, on average, better placed to absorb a period of higher borrowing costs than at any point since the early 2000s.
Third, inflation surprised on the downside in April, softening more than expected. While the Middle East conflict is expected to push headline CPI higher through energy costs, the better reading gives the Bank of England slightly more room to hold rates. That reading was reinforced in May when Bank deputy governor Sarah Breeden signalled no urgency to raise rates at either the June or July meetings — significant reassurance for fixed-rate mortgage pricing.
Fourth, and perhaps most critically for mortgage professionals, swap rates remain well below the highs of 2023. Gardner is explicit on this point: swap rates, which underpin fixed-rate mortgage pricing, are broadly in line with levels prevailing in 2024, implying only a partial reversal of the affordability gains made over the past two years. The implication for borrowers coming off fixed rates in the coming months is that, while the environment is less favourable than six months ago, it is far from the stress test scenario of 2022–23.
"This provides some confidence that, if the latest shock passes relatively quickly, and energy prices normalise in the quarters ahead, any near-term softening in the housing market will also prove short lived."
— Robert Gardner, Chief Economist, Nationwide Building Society, May 2026
The RICS Picture: Weak, but Not Collapsing
Nationwide's HPI draws on mortgage approval data and is a lagging indicator of market health. The RICS April survey gives a more forward-looking read — and the picture is genuinely weak, particularly in London and the South East.
New buyer enquiries registered a net balance of −34 per cent in April, an improvement on March's −40 per cent. Agreed sales were at −36 per cent, broadly flat month-on-month. Near-term price expectations stood at −38 per cent, though twelve-month expectations, while at their weakest since late 2023, remained marginally positive at +5 per cent. The regional divide is notable: the North West and Scotland continued to register relatively resilient readings, while the sharpest downward pressure was concentrated in London, the South East, East Anglia and the South West.
RICS head of market research Tarrant Parsons described conditions as "still in the grip of macro headwinds" but notably did not characterise them as deteriorating from one month to the next — the March-to-April comparison shows a modest recovery in buyer enquiries and stable sales activity. Until there is a clearer path for inflation and borrowing costs, he said, activity will remain subdued, particularly in southern England where affordability pressures are most acute.
Mortgage Arrears: A Quiet Piece of Good News
One data point that received less attention than it deserved was the UK Finance arrears release for Q1 2026. Homeowner mortgages in arrears of 2.5 per cent or more of the outstanding balance fell 2 per cent in the first quarter to 79,110, while buy-to-let arrears dropped 24 per cent year-on-year to 8,960.
To put those figures in perspective: arrears peaked at 216,400 during the global financial crisis in Q2 2009. The current level, at 0.9 per cent of all homeowner mortgages, remains historically very low. This is precisely the kind of balance sheet resilience that Gardner cites when arguing the UK housing market can absorb a temporary external shock without the cascade of defaults that would turn a soft patch into a rout.
James Tatch, head of analytics at UK Finance, noted that lenders were standing ready to support customers and that possessions — while edging marginally higher — remain well below historical averages and predominantly involve mortgages taken out more than a decade ago.
What This Means for Mortgage Professionals
The May HPI data will generate alarming headlines in the general press. Brokers should be prepared to translate the numbers carefully for clients, particularly those hesitating over a purchase decision or a remortgage.
The relevant points are these. Annual house price growth remains positive at 1.7 per cent — houses are worth more than a year ago, not less. The three-month trend is still positive. Swap rates, while higher than six months ago, are far below 2023 peaks. Household debt is at a twenty-year low relative to income. And the Bank of England has explicitly signalled no rate hikes are imminent at its next two scheduled meetings.
The risks are real. The Middle East conflict remains unresolved. Inflation is above target and could yet surprise on the upside. Consumer confidence, as measured by GfK, fell to its lowest reading since late 2023 in April and improved only marginally in May. The RICS survey leaves no doubt that buyer demand has fallen and that vendors are increasingly having to price realistically to achieve sales.
But Gardner's framing is the right one for client conversations: the UK housing market has proved remarkably resilient in recent years, and the foundations — household balance sheets, employment, and swap rates — are not in the same place they were in 2023, let alone 2008. If the external shock passes relatively quickly, this is a market that looks capable of recovering with it.
The question, as ever, is timing. And on that, even Nationwide's chief economist declines to be precise.
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