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UK house prices rose for the third consecutive month in December to their highest level since March 2023, according to data from mortgage provider Halifax that provides further evidence of a rebound in the property market.
Average house prices increased 1.1 per cent last month and by 1.7 per cent last year, Halifax said on Friday. It was the third successive monthly rise and took prices to their highest point in nine months.
Separate data on Friday showed UK construction activity registered its best reading in four months in December, with housebuilders reporting the mildest decline since July.
The S&P Global construction purchasing managers’ index, a monthly indicator of the health of the sector, rose to 46.8 last month from 45.5 in November. A reading below 50 indicates a majority of businesses reporting a contraction.
While Halifax attributed the December increase to a shortage of properties on sale, the house price and PMI figures add to evidence that the property market is improving as mortgage rates fall and builders’ sentiment rises.
This will raise hopes of improvement in construction output and home-related spending, which affect the wider economy, as the squeeze from high interest rates and living costs eases.
Imogen Pattison, economist at the consultancy Capital Economics, said the “big” increase in the Halifax index “confirms that falls in mortgage rates are translating into renewed increases in house prices”.
Bank of England data published on Thursday showed mortgage approvals rose to a five-month high of 50,100 in November. The central bank found that two-year fixed mortgage rates with 60 per cent loan-to-value eased on average from 6.2 per cent in July to 5.1 per cent in November.
Rates on popular five-year deals have also declined since the summer, with big high-street lenders such as NatWest and HSBC announcing cuts to products this week.
The property market is highly sensitive to changes in interest rates, which are at a 15-year high of 5.25 per cent. Financial markets expect the BoE to start cutting rates in the spring, taking the cost of borrowing to 3.75 per cent by the end of the year.
Charles Breen, founder of mortgage broker Montgomery Financial, said there was a “renaissance” in the property market in December. “Lenders were proactive in cutting rates, and people have now adjusted to the new normal and accepted rates as they are,” he added.
Kim Kinnaird, mortgage director at Halifax Mortgages, said that although the growth in December was “likely being driven by a shortage of properties”, continuing falls in mortgage rates meant “we may see an increase in confidence from buyers over the coming months”.
A typical UK home cost £287,105 last month, just over £5,000 more than in December 2022 and the highest in nine months, according to Halifax.
Despite December’s rise, annual price growth was uneven across regions and nations. Property prices rose 4.1 per cent in Northern Ireland and by 2.6 per cent in Scotland, but fell 4.5 per cent in the south-east of England.
London remained the most expensive part of the UK, with the average home costing £528,798, although prices in the capital declined 2.3 per cent on an annual basis.
Analysts disagree on the outlook for house prices. With interest rates likely to remain elevated, Halifax predicted house prices would fall 2 to 4 per cent in 2024.
By contrast, Capital Economics said it expected a rise in house prices this year on the back of improved affordability and the decline in average mortgage rates.
“In light of the adjustments to our mortgage rate forecasts, we are revising up our forecast for house price growth this year from minus 1.5 per cent year on year in Q4 to plus 3 per cent,” said Pattison.
Separately, NatWest chair Sir Howard Davies came under fire on Friday for saying it was not “that difficult” to buy a house.
Asked when he thought it would be easier for people to get on the property ladder, Davies told the BBC: “I don’t think it’s that difficult at the moment . . . You have to save, and that’s the way it always used to be.”
Ben Twomey, chief executive of Generation Rent, a campaign group, wrote on X: “What planet does he live on?”
In a statement later on Friday, Davies said he “did not intend to underplay the serious challenges” people faced when buying a house.