Nationwide has said that house prices have seen their largest fall in almost 14 years and there are tentative signs of a recovery.
House prices fell by 3.4% year-on-year in May which is biggest drop since July 2009 which saw an annual fall of 6.2%.
Nationwide who are one of the biggest mortgage lenders said that data showed a month-on-month fall of 0.1% in May.
The average cost of a home in the UK stands at £260,735 and Nationwide’s index in April showed a 0.4% rise in monthly prices.
Robert Gardner, Nationwide’s chief economist, said their data “largely reflects base effects with prices broadly flat over the month after taking account of seasonal effects.”
Gardner added, “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.
“Moreover, headwinds to the housing market look set to strengthen in the near term.
“While consumer price inflation did slow in April, it was a much smaller decline than most analysts had expected.”
He continued, “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.
“While activity is likely to remain subdued in the near term, healthy rates of nominal income growth, together with modestly lower house prices, should help to improve housing affordability over time.”
Alice Haine, personal finance analyst at investment platform Bestinvest, warned the “storm clouds are gathering” as interest rates could peak even higher.
She said: “While the start of the year saw an uptick in market activity amid falling mortgage rates and a robust labour market, storm clouds are gathering once again as interest rates and gilt yields edge ever higher.”
She added: “With the markets now betting on more rate hikes ahead, with interest rates potentially peaking at 5.5% – or worse, higher – as the Bank of England looks to win the battle to tame inflation, this causes problems for the property market.
“The changing interest rate expectations have led to big movements in the bond markets, and as bond yields rise so do swap rates, which lenders use to price home loans.
“It means borrowers must adjust to even higher mortgage rates in addition to persistently high living costs and rising taxes.
“Over the past week, hundreds of residential and buy-to-let mortgages have been pulled from the market as lenders reassess their offers.”