House prices are dropping – here’s why they could fall by more this summer

The property market is showing signs of struggling.

House prices fell for the first time this year in May, according to figures from building society Nationwide.

The cause of this is fairly clear. Rising interest rates, driven by an expected bump in inflation since the start of the war in Iran, have limited what buyers can afford.

The dip in prices has been moderate so far – 0.6 per cent last month, according to Nationwide – but there are warning signs that this could only be the beginning.

This summer and into autumn, the strain on the property market may start to show further, as these higher rates become the norm.

Mortgage rates increased at the start of March as the US started its offensive in the Middle East.

But mortgage offers typically last six months. Anyone who secured a rate before March will still be able to use it – though they will be moving ever closer to their expiry date.

Property deals can take an age to complete – with three to four months being the norm – and issues such as problems with surveys or solicitors, or a wait for a completed purchase chain can cause further delays.

If prospective homeowners see things extend much further and their home loan offer expires, tens of thousands may be left facing higher monthly payments.

Then, many will want to negotiate down prices.

Sellers are unlikely to be happy about this – and experts say it risks creating a stand-off.

Matt Dawson, director of estate agency Westwood Property Services, based in south-east London, said he has had many conversations with buyers about this very issue.

“I have had a couple of buyers who have had to get new mortgage offers already, and the difference [on the rate] is about 1 per cent from pre-Iran.

On a £300,000 mortgage over a 25-year period, a difference of 1 per cent in rate equates to £3,000 a year of extra payments.

“Ultimately, buyers then want some money off the asking price to curb the extra monthly payments,” says Dawson.

Dawson said some sellers were willing to negotiate on price, but most were “still in denial” that the property market has become tougher. That sort of issue can bring property transactions to a halt.

Summer months may bite

AlAlthough standard mortgage offers tend to be around six months, there are exceptions, with some lender offers sitting at 90, 120 or 150 days.

“Anyone who secured a rate in late 2025 or early 2026 will be coming up against that expiry window now. Higher mortgage rates may mean potentially hundreds of pounds extra a month on a typical mortgage today,” explains Richard Donnell, executive director at property website Zoopla.

“Lenders may be willing to extend offers in certain circumstances, particularly where the delay is outside the buyer’s control. But the approach varies and there is no automatic right to the original rate and it varies significantly by lender,” he adds.

Some major lenders don’t offer extensions and even if they are allowed, they can require extra paperwork like new payslips.

Nicholas Mendes, mortgage technical manager at John Charcol, said the pressure on the market was likely to build through the summer, as more and more of those cheaper pre-March mortgage deals become invalid.

“Borrowers with shorter 90 to 120-day offers may start feeling it around June and July,” he said.
“For the mainstream six-month offers, the bigger period to watch could be late August into September, particularly for buyers who secured offers in late February or March,” he added.

Donnell said that extensions would become “important” later in the year to support some of the agreed sales.

Down valuations becoming more common

Expiring mortgage contracts are not the only thing causing issues in the market.

Slight property price drops are prompting more mortgage lenders to lower their valuations, which can, in some cases, lead to sales falling through or buyers asking for reductions.

When you purchase a home with a mortgage, the lender will hire a surveyor to check that the price paid is reasonable and that they are happy to lend on it.

If the surveyor thinks the property is worth less than you offered, the lender can refuse to lend on it, or the mortgage rate you pay can go higher, because the bank now thinks you are borrowing against a bigger proportion of the home’s value.

Banks give higher rates to those with higher “loan-to-value” (LTV) ratios on the home they are buying. If you are buying a £300,000 home with a 10 per cent deposit of £30,000, you are borrowing at an LTV of 90 per cent. If the surveyor values it at £280,000 but you’re paying £30,000, your £30,000 deposit is effectively only worth £28,000 in the eyes of the bank.

Now you’re borrowing at an LTV of 91 per cent, so the rate the bank will offer you on your borrowing could be worse.

In some cases, this could be enough to mean you can no longer afford to buy the property.
According to Joseph Lane, founder of Mortgage Lane, lenders are much more cautious in a higher-interest-rate era.

These down valuations are becoming a little more common, which is affecting the market.

He said: “Lenders aren’t just valuing what the property is worth anymore – they’re protecting themselves against the uncertainty in the future, and it is seriously affecting what buyers can realistically afford.

“We are seeing borrowers tread with much more caution to allow themselves breathing space to account for the general cost of living, and reassessing budgets before committing to purchases.”

One of the biggest consequences of down valuations is that it can totally disrupt a transaction and cause a domino effect on a buying chain, if even just one buyer can no longer proceed, Lane explained.

He added: “As affordability is already under so much pressure across the market, I think we will continue to see fragility in buying chains caused by situations like this.

Matt Dawson said he had seen the impact of this on the market.

He explained: “This year we have seen more down valuations where the bank is being harsher on what figures they are prepared to lend on.

“To give as an example, we sold a three-bedroom maisonette in Sidcup last year that was valued at £400,000. The sale fell through for personal reasons and we re-sold it a year later, but the bank then valued it at £370,000.”

According to Dawson, after receiving the down valuation, the buyers were able to renegotiate with the sellers on the price, and met in the middle, paying £385,000.

Buying this year? What to do

Property expert Jonathan Rolande said that if you are close to the six month mortgage offer deadline and your solicitor is still moving slowly, you should call your broker or mortgage lender.

He said: “Many lenders will extend an offer, often by three months, but they rarely suggest it. They aren’t legally obliged to and may not if your financial situation has changed or there has been a spike in interest rates.”

“Do not let the offer expire. If it lapses, you are back to square one, and that can cost weeks or even months,” he warned.

If you receive a down valuation, Rolandes suggested going back to the sellers with the new valuation figure. If the valuation is accurate, the seller’s options are limited.

He said: “The sellers either accept the reduction, find a cash buyer willing to ignore a surveyor, or go back on the market. With down valuations becoming more common, sellers and their estate agents know this. However, not all sellers act logically and may take offence, withdrawing from the sale or from the market altogether.”

Rolande added that if the valuation feels wrong, you can challenge it with comparable evidence, but this should not be your first option.

“Surveyors are not infallible – valuing is more art than science. Some do not know every street as well as they should. But they will defend their figure as their reputation will be at stake, so this is very much a last resort and frankly, unlikely to be successful,” he explained.