House prices may fall. They are propped up at the moment due to the historic low interest rates and some voter-sensitive tax and planning concessions. At least one of these will change. The UK economy is growing at the weakest rate since 2012 for various reasons (he writes, cautiously...)
Which means the loan companies need to be conservative - it is not a given that house price inflation will continue, covering their risks as it did so in recent history. "It doesn't matter in the long term" is no longer a given for lender, nor borrower.
That all said, if you like the house and £500K is an amount you can comfortably pay, bearing in mind your long-term job security and that interest rates will rise, then as you mention, 5% isn't much. About what some lose in depreciation on their car in a year or two. And it's better than renting for ever. If the market price falls, as it well might, you still have somewhere to live. So another option is perhaps 4) Pay the agreed price, and not feel miserable...