"While a rapid rebound in activity or house prices in 2024 appears unlikely, the outlook is looking a little more positive."
- Robert Gardner, Nationwide's chief economist
UK house prices rose 0.7% month-on-month in January and saw a further recovery in the annual rate of change, with prices down just 0.2% compared with a year ago, according to the latest Nationwide house price index.
The annual rate of house price growth improved from -1.8% in December to -0.2% in January, the strongest outturn since January 2023.
Commenting on the figures, 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."
Karen Noye, mortgage expert at Quilter, commented: "Just yesterday, the Bank of England’s Money and Credit statistics revealed net mortgage approvals for house purchases rose from 49,300 in November to 50,500 in December. While this is only a slight improvement, the increase suggests there is a little more optimism for the upcoming year in comparison to the more dreary outlook for the housing market seen throughout 2023.
“The BoE’s monetary policy committee is due to meet tomorrow and is widely expected to hold interest rates at 5.25%. The Bank’s ‘higher for longer’ stance has resulted in a tricky landscape for prospective buyers, and it is unlikely to lower rates for some time yet - potentially not until the second half of 2024 unless inflation lowers rapidly. However, mortgage deals have been looking a little more palatable as lenders have consistently cut mortgage rates as swap rates have lowered, particularly on fixed rate deals. This is likely to continue as the still low transaction levels feed into a healthy competition between lenders which have been left vying for business.
“The precarious nature of the economy had left many prospective buyers in ‘wait and see’ mode, reluctant to buy a new home in the hopes of securing lower rates further down the line, but we are now seeing tentative signs that people are making a return to the market. Should mortgage rates continue to fall then more may be lured back to the market sooner which would help to buoy prices further."
Jonathan Hopper, CEO of Garrington Property Finders, added: “One month into 2024 and the property market is sticking to its New Year’s Resolution.
“Prices are stabilising in many areas, the number of homes coming onto the market is slowly ticking up and we’re seeing would-be buyers who held back last year begin their property search in earnest.
“January is often a busy month for buyer enquiries, but this year activity has been buoyed by two factors – 2023’s reset in prices has made homes cheaper in large parts of the country, and the flurry of interest rate cuts announced by mortgage lenders at the start of the year.
“With the Nationwide’s latest data adding to the sense that prices have bottomed out, increasing numbers of buyers have decided to act now before prices start to pick up again.
“While the Nationwide’s headline figure shows the average home was worth just 0.2% less this January compared to last year, in some regions the price correction has been much more dramatic – and homes in many desirable locations are significantly better value than they were a year ago.
“While Britain’s inflationary dragon is far from slayed and as a result the Bank of England is unlikely to cut interest rates as fast as hoped, many tactical buyers sense a window of opportunity as the market approaches a sweet spot of better value prices and more affordable mortgage borrowing.
“The recovery is still tentative, but it’s on.”
