Nationwide Building Society has reported that UK house prices rose by 0.7% in January, after taking account of seasonal effects.
The UK’s largest building society said this resulted in an improvement in the annual rate of house price growth from -1.8% in December to -0.2% in January, the strongest outturn since January 2023.
Robert Gardner, Nationwide’s chief economist, said: “There have been some encouraging signs for potential buyers recently with mortgage rates continuing to trend down. This follows a shift in view amongst investors around the future path of Bank Rate, with investors becoming more optimistic that the Bank of England will lower rates in the years ahead.
“These shifts are important as this led to a decline in the longer-term interest rates (swap rates) that underpin mortgage pricing around the turn of the year. However, the partial reversal in recent weeks in response to stronger than expected inflation and activity data cautions that the interest rate outlook remains highly uncertain.
“While a rapid rebound in activity or house prices in 2024 appears unlikely, the outlook is looking a little more positive. The most recent RICS survey suggests the decline in new buyer enquiries has halted, while there are tentative signs of a pickup in the number of properties coming onto the market.
“How mortgage rates evolve will be crucial, as affordability pressures were the key factor holding back housing market activity in 2023. Indeed, at the end of 2023, a borrower earning the average UK income and buying a typical first-time buyer property with a 20% deposit had a monthly mortgage payment equivalent to 38% of take-home pay – well above the long run average of 30%.
“If average mortgage rates were to trend down to 4%, this would ease the mortgage payments burden to 34% of take-home pay (assuming house prices and earnings are unchanged). However, other things equal, mortgage rates of 3% (still well above the lows seen in the wake of the pandemic) would be needed to bring this measure of affordability back towards its long run average.
Alan Davison, director of customer sales at Together comments: “House prices have continued to rise with falling mortgage rates giving a boost to buyer demand at the start of the year. While sellers may still be getting largely cut-back offers on listings, market for first time buyers and home-movers is certainly picking up momentum. There are also opportunities in the residential property market for buy-to-let investors.
“That said, there are still lingering challenges property professionals will need to contend with for much of this year. According to our research, 30% think inflation and the high interest climate (27%) will be the biggest deterrent to plans this year. All eyes will be on the Bank of England’s interest rate announcement tomorrow and whether there is any indicator of cuts to help ease some of these market tensions.
“However, the defying optimism of the sector – 58% would recommend investing now, combined with the beginning green shoots of economic recovery, means both commercial and residential property investors who are well poised (with the right finance support in place) will ultimately be in the best position to capitalise on market opportunities first.”