The UK Rightmove House Price Index year-on-year rose to -0.3% in May, up from -0.9% previously.
This shows the annual rate of change remained negative, but the decline eased compared with the prior reading.
The slowing rate of year-on-year house price decline suggests the property market is nearing a bottom. This reduces the probability of a sharp economic downturn driven by a housing crash, a major concern we held throughout 2025. We should therefore adjust positions that were betting on significant further weakness in the UK economy.
This stabilisation may give the Bank of England less incentive to implement further interest rate cuts in the coming months. We saw the Bank pause its easing cycle earlier this year after inflation proved stickier than expected, with the latest CPI data from April showing inflation still at 2.1%. Derivative markets pricing in aggressive cuts may need to be repriced, creating opportunities in SONIA futures.
A more stable housing market and a less dovish central bank are supportive for the pound. Sterling has already gained over 2% against the Euro since March, and this trend could continue. We should consider long GBP positions against currencies where the central bank is more actively cutting rates.
This news is directly positive for UK homebuilders and banks, which have been under pressure. Looking back at the trading patterns from 2025, these sectors reacted strongly to any hints of interest rate peaks. We can use options on the FTSE 250 index, which has high exposure to the domestic economy, to position for a gradual recovery.
With the worst of the housing downturn appearing to be over, implied volatility on UK-focused assets may be overstated. The data points towards a period of stabilisation rather than a sharp V-shaped recovery. This environment could favour strategies that involve selling volatility on relevant equity indices or currency pairs.
