Nationwide reports suggest a brighter outlook for the UK housing market, with recent price trends indicating notable improvements.
UK House Prices Surge
In January, the index of the building company showed a notable shift, with a 0.7% increase compared to the 1.8% decline in house prices observed in December.
In January, the average house price in Britain stood at £257,656, representing a marginal 0.2% decrease from the previous year.
Robert Gardner, Nationwide’s chief economist, stated: “While a rapid rebound in activity or house prices in 2024 appears unlikely, the outlook is looking a little more positive.” He attributed this to “encouraging signs” for buyers, driven by continuously decreasing mortgage rates.
“This follows a shift in view among investors around the future path of [interest rates], with investors becoming more optimistic that the Bank of England will lower rates in the years ahead,” He added.
Despite the optimism, it is anticipated that the rates will remain at 5.25% when the bank updates its market next Thursday. A similar rate maintenance between 5.25% and 5.5% is also expected from the US Federal Reserve during its upcoming update scheduled for Wednesday night.
Verona Frankish, Chief Executive of the online estate agent Yopa, stated: “While we expect that interest rates will remain at 5.25% this week, this will only help to stabilize the market further, providing buyers with the confidence that they can proceed with their purchase without the goalposts of mortgage affordability moving during the process.”
Nationwide Report: Changing Market Conditions and Affordability Challenges
Nationwide also turned to data from the Royal Institute of Chartered Surveyors (RICS), which highlighted the halt in the decline of inquiries from new buyers. RICS also noted “tentative signs” of a more welcoming market for new homes.
In the current month, new buyer inquiries saw a 3% decrease, as reported by RICS. This marks a notable improvement from the 13% drop recorded in November of the previous year.
Nationwide cautioned that the trajectory of interest rates in the coming months will be crucial, as ongoing affordability pressures continue to impede the market, impacting last year’s activity.
Currently, borrowers with average UK incomes who are purchasing homes with a 20% down payment are facing monthly mortgage payments that consume approximately 38% of their net earnings, significantly exceeding the 30% long-term average.
Nationwide emphasized that in order to restore the affordability measure to 30% of net earnings, mortgage rates would need to move closer to the 3% mark.
Robert Gardner, Nationwide’s chief economist, noted, “There remains significant variation in affordability across the country, with particularly acute pressures in London, the South of England, and East Anglia. In contrast, Scotland and the North continue to be the most affordable regions, with mortgage payments as a share of take-home pay much closer to their long-run average.”
It is worth noting that the median income of first-time buyers is approximately 55% higher than the median income in London. This implies that an increasing number of first-time buyers are depending on family, friends, or inheritance to afford their properties.
Over the past two years, nearly 50% of first-time buyers have relied on various forms of assistance to raise a deposit, including inheritance, gifts, or loans from their social circle. This represents a nearly twofold increase from the 27% reported in the mid-nineties.
Rising Population and Its Impact on UK Housing Prices
When assessing housing prices in the UK, it is crucial to consider the continuously growing population as a significant factor.
Indeed, official projections indicate that immigration will contribute to a substantial increase in the UK’s population, adding 6.1 million people by 2026.
According to data from the Office for National Statistics, the overall population is projected to reach 74 million by 2036, representing a 10% increase from the current approximate level of 67 million.
The primary driver of population growth in the UK is immigration, with an anticipated influx of over 6 million people choosing to immigrate to the UK instead of leaving the country. This is equivalent to adding a population the size of some of the UK’s largest cities outside the capital.