(Bloomberg) — UK house prices rose more than forecast this month as cheaper borrowing costs extended the property-market recovery into 2024, according to one of the country’s biggest mortgage lenders.
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Nationwide Building Society said the average price of a home rose 0.7% in January to £257,656 ($326,550), beating the 0.1% gain expected by economists. It left prices just 0.2% lower than a year earlier, the strongest reading in 12 months.
“There have been some encouraging signs for potential buyers recently with mortgage rates continuing to trend down,” said Robert Gardner, chief economist at Nationwide. “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.”
“While a rapid rebound in activity or house prices in 2024 appears unlikely, the outlook is looking a little more positive.”
The findings add to evidence that the housing market will stabilize this year, after avoiding a widely-anticipated crash last year. Nationwide is predicting a modest decline in prices in 2024, though others see a small rise.
According to Moneyfacts, the average 2-year fixed mortgage rate has fallen to 5.18%, down from almost 7% last summer. The BOE is expected to begin cutting its key rate by the summer and may signal a pivot at its meeting on Thursday.
“The reported month-on-month increase in house prices will start to encourage homeowners to feel more confident that they can potentially make their next move,” said Nathan Emerson, CEO of Propertymark. “If the Bank of England decide to bring down interest rates too, this should give sellers even more confidence and ease the pressure on affordability. Hopefully this is the start of a period of economic recovery for the nation.”
However, Gardner noted that the interest-rate outlook remains “uncertain,” with traders scaling back bets in recent weeks on how far the BOE will cut rates after stronger-than-expected inflation data.
“How mortgage rates evolve will be crucial, as affordability pressures were the key factor holding back housing market activity in 2023,” he said. “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%.”
Affordability pressures are greatest in London, where the average income of first-time buyers is 55% higher than the average income for adult full-time workers. In the South East and East of England, the next least affordable regions, first-time buyers typically earn 25% more than the average worker.
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