UK house prices grew for the first time on an annual basis in more than a year in February, as a decline in borrowing costs prompted an uptick in the housing market, according to a survey.
The average price of a home rose to £260,420, up by 0.7% from the month before, and 1.2% higher compared with a year earlier, according to Britain’s biggest building society, Nationwide. This is the first annual growth since January 2023, and comes after a 0.2% year-on-year drop in January.
House prices are still about 3% below the record highs reached in the summer of 2022.
Buyers and sellers continued to return to the property market last month, and are expected to increase the number of home sales by 10% this year, according to the property website Zoopla.
The Nationwide chief economist, Robert Gardner, said: “The decline in borrowing costs around the turn of the year appears to have prompted an uptick in the housing market.”
This week, Bank of England data showed that new mortgage approvals rose in January to their highest level since October 2022, although new lending was still subdued in historic terms.
Uncertainty about the future path of interest rates remains high, Gardner said. He added that after falling sharply in late December, swap rates, which underpin fixed-rate mortgage pricing, have drifted back up.
While borrowing costs remain well below the highs recorded last summer, if this recent upward trend is sustained, it threatens to restrain the pace of any housing market recovery, he said.
“While the squeeze on household budgets is easing, with wage growth now outstripping inflation by a healthy margin, it will take time to make up for the ground lost over the past few years, especially given consumer confidence remains fragile,” he added.
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The Bank of England last month left interest rates unchanged at 5.25% for a fourth consecutive time. Financial markets forecast two to three quarter-point reductions this year.
Tom Bill, the head of UK residential research at the upmarket estate agent Knight Frank, said: “Buyers feel confident that the only way for the base rate is down, which has seen demand and house prices pick up in recent months. However, the upwards pressure on mortgage rates in recent weeks shows sellers the importance of getting the asking price right.
“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%.”
Jeremy Leaf, a north London estate agent and a former Royal Institution of Chartered Surveyors residential chair, warned against focusing too much on property prices when assessing how the housing market is performing.
“In our offices, more valuations, listings and viewings combined with fewer fall-throughs than this time last year are feeding through to agreed sales, mortgage approvals and exchanges,” he said.
