UK house prices rise more than expected in January, says Nationwide

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UK house prices rose more than expected in January, according to mortgage provider Nationwide, as easing mortgage rates helped to stabilise the property market.

House prices increased 0.7 per cent between December and January, the fastest pace since October, data published on Wednesday showed.

The figure was much higher than the 0.1 per cent increase forecast by economists polled by Reuters and took the average house price to £257,656.

Jake Stott, founder of Manchester-based broker Mondo Mortgages, said the increase in the Nationwide data “highlights the optimism that is emerging after a turbulent 2023”.

“Since lenders decided to slash rates right from the start of the month, we’ve seen first-time buyers popping up like daffodils in spring,” he added.

The data offers further signs that the UK property market is improving as mortgage rates ease on expectations that the Bank of England will cut interest rates this year.

The housing market’s resilience indicates a more positive outlook for the wider economy and will be closely monitored by policymakers ahead of the BoE meeting on Thursday, when the bank is widely expected to hold the benchmark rate at a 15-year high of 5.25 per cent.

On Tuesday BoE data showed that the average rate for new mortgages fell in December for the first time since November 2021 and that mortgage approvals rose to a six-month high.

Rates on popular deals, such as two-year fixed mortgage rates with 60 per cent loan to value, have eased from the summer, reflecting expectations of lower borrowing costs.

Robert Gardner, Nationwide’s chief economist, said: “There have been some encouraging signs for potential buyers recently with mortgage rates continuing to trend down.”

Experts also noted that rising real wages and easing inflation from the peak in 2022 also helped to support house prices.

In January the annual contraction in house prices eased to minus 0.2 per cent, from minus 1.8 per cent in the previous month, Nationwide reported.

The average house price was still £16,000 below its peak of £273,750 reached in August 2022, when the property market was hit by rising interest rates.

However, prices were still about £42,000 higher than in January 2020, reflecting the pandemic boom when record-low interest rates boosted demand.

Nationwide warned that raising a deposit remained a major challenge for homebuyers. It calculated that a 20 per cent deposit on a typical first-time buyer’s home is now about 105 per cent of average annual gross income.

This is down from the all-time high of 116 per cent recorded in 2022, but still close to the pre-financial crisis level of 108 per cent.

However, the outlook for the property market has brightened as mortgage rates continue to ease and real household incomes are expected to improve as inflation eases further.

The period of nominal house price falls “is now behind us”, said Andrew Goodwin, chief UK economist at Oxford Economics. With popular mortgage rates falling since the middle of last year, “the prognosis for the housing market now looks markedly better than it did in 2023”, he said.

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