UK house prices experienced a growth of 1.9% in February, indicating a £5,318 increase over the past year. This means properties are now only £7,801 shy of the peak observed in August 2022.
Demand among buyers for smaller homes helped to drive growth in UK property prices in the early months of this year, according to Halifax.
Flats and terraced houses made up for 57% of all homes purchased by first-time buyers last year. However, this varies by region. For example in London, which has the highest average property price in the UK by some margin, flats and terraced homes account for 90% of all first-time buyer purchases.
Flats prices rose most quickly at the start of the year than any type of property.
Annual growth reached 2.7% in February, or £4,290 up over the last year. The average price paid of £163,016 is just £5,551 below the peak price recorded for flats in August 2022.
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“This could signal that the race for space is over, reflecting the toll high living costs and high interest rates have taken on buyers’ affordability levels. With interest rates holding at 5.25% since August last year and inflation, although easing now, remaining high throughout 2023, people found their mortgage affordability levels severely constrained,” Alice Haine, personal finance analyst at Bestinvest, said.
At a regional level, Scotland saw the strongest growth in prices for flats over the last year, rising by 5.9% or £6,489 to sit at £116,477.
Only one UK region saw a decrease in flat prices over the last year, falling by 2.9% in Yorkshire and Humberside.
Looking further back, at a national level flats remain 11.9% (£17,349) above pre-pandemic levels, with East Midlands posting the biggest gains (18.7%, £20,923) of any region.
“As interest rates have stabilised and buyers adjust to the new economic reality of owning a home, one way to compensate for higher borrowing costs is to target smaller properties. This is especially true among first-time buyers, who have proven to be resilient over recent years, and now account for the largest proportion of homes purchased with a mortgage in almost 30 years,” Amanda Bryden, head of Halifax Mortgages, said.
“We see this reflected in property prices for the first few months of this year, with the value of flats rising most sharply, closing the ‘growth gap’ on bigger properties that’s existed for most of the last four years,” she added.
While the overall number of first-time buyers is lower than recent years, they made up 53% of all homes bought with a mortgage in 2023. That’s the highest proportion since 1995.
The trend for smaller homes is also seen in houses, with the average price paid for terraced properties growing by 2.6% (£5,643) over the last year, now standing at £224,173.
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The North East has seen prices for terraced houses rise the most on an annual basis, up by 7.6% (£8,938).
With demand for larger properties easing, semi-detached houses have seen the weakest annual growth over the last year, rising by +1.7% (£4,797), with the average price paid now £295,199.
Once again, the North East saw the biggest increase in average price, up by 5.9% (£10,381) annually.
However, three regions saw average prices for semi-detached properties fall: Eastern England (-1.3%), Greater London (-1.2%), and the South East (-0.8%).
At the top end of the size scale annual growth for detached houses hit +2.0% (£8,853) in February, with an average price of £451,655.
Yorkshire and Humberside recorded the biggest increase in detached house prices of the last year, up by 5% (£17,300).
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UK house prices grew in March on a quarterly basis, by 2.0%, with annual growth slowing to 0.3%, from 1.6% in February.
Compared to a month ago, the price of a UK property fell 1.0% or £2,908 in cash terms, with the average property now costing £288,430.
Northern Ireland remains strongest performing nation or region in the UK – with house prices up by 4.3% on an annual basis. Properties in Northern Ireland now cost an average of £194,743, which is £7,972 more than a year ago.
In Wales annual property price growth slowed to 1.9% in March, from 3.9% in February, with the average home now costing £219,213. Meanwhile Scottish house prices rose 2.1% year-on-year to stand at £204,835.
Something of north/south divide exists in England, where the North West saw the strongest growth, up by 3.7% on an annual basis to £232,315.
Properties in Eastern England recorded the biggest decline of 0.9%, with homes selling for an average of £330,627, a drop of £2,878 over the last year.
London continues to have the highest average house price in the UK, at £539,917. Prices in the capital have increased by 0.4% over the last year.
These figures all come from the latest index produced by the Halifax, whose head of mortgages – Kim Kinnaird – says: “That a monthly fall should occur following five consecutive months of growth is not entirely unexpected particularly in view of the reset the market has been going through since interest rates began to rise sharply in 2022.
“Despite this house prices have shown surprising resilience in the face of significantly higher borrowing costs.
“Affordability constraints continue to be a challenge for prospective buyers, while existing homeowners on cheaper fixed-term deals are yet to feel the full effect of higher interest rates. This means the housing market is still to fully adjust, with sellers likely to be pricing their properties accordingly.
“Financial markets have also become less optimistic about the degree and timing of Base Rate cuts, as core inflation proves stickier than generally expected. This has stalled the decline in mortgage rates that had helped to drive market activity around the turn of the year.
“The broader picture is that house prices are up year-on-year, reflecting the opposing forces of an easing cost of living squeeze – now that pay growth is outpacing general inflation – and relatively high interest rates. Taking a slightly longer-term view, prices haven’t changed much over the past couple of years, moving in a narrow range since the spring of 2022, and are still almost £50,000 above pre- pandemic levels.
“Looking ahead, that trend is likely to continue. Underlying demand is positive, as greater numbers of people buy homes, demonstrated by recent rises in mortgage approvals across the industry and underpinned by a strong labour market. And with rental costs rising at record rates, home ownership continues to be an attractive option for those who can make the sums work. However, the housing market remains sensitive to the scale and pace of interest rate changes, and with only a modest improvement in affordability on the horizon, this will likely limit the scope for significant house price increases this year.”
UK house prices returned to growth for the first time in more than a year as mortgage rates eased, according to Nationwide.
Property values increased by 0.7% between January and February, making the average home worth £260,420. Annually, house prices increased by 1.2% in February, following a 0.2% fall in January.
It marked the first month since January 2023 that Nationwide recorded positive annual growth in house prices.
Nationwide’s chief economist Robert Gardner said: “House prices are now around 3% below the all-time highs recorded in the summer of 2022, after taking account of seasonal effects. The decline in borrowing costs around the turn of the year appears to have prompted an uptick in the housing market.”
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Earlier this week, the Bank of England said that the number of mortgage approvals made to home buyers jumped to the highest level since October 2022 in January this year.
HM Revenue and Customs (HMRC) figures showed this week that 82,000 home sales took place in January, which was 12% lower than January 2023 and 2% higher than December 2023.
However, Quilter’s mortgage expert Karen Noye highlights, some lenders have recently been raising their mortgage costs. She also points out that some lenders, including Nationwide, have recently been raising their mortgage rates.
“Lower mortgage rates at the start of the year appear to have spurred some buyers back to the market which has buoyed prices, but more recently we have seen a further uptick in rates as swap rates have risen so this could be relatively short lived,” she said.
“Just last week, lenders including Nationwide, NatWest, Santander and HSBC all made the decision to increase their rates,” she added.
Gardner also warned that uncertainty about the future of interest rates could yet derail price rises. “Borrowing costs remain well below the highs recorded last summer but, if the recent upward trend is sustained, it threatens to restrain the pace of any housing market recovery,” he said.
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Tom Bill, head of UK residential research at Knight Frank, predicts average house prices will rise by 3% this year, as interest rates are cut. “Banks are keen to lend and should eventually lower rates this year as inflation comes under control, which we believe will sustain positive annual growth in 2024 and see UK house prices increase by 3%,” he said.
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