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UK house prices post first annual increase in more than a year

UK house prices experienced a stronger-than-expected rise in February, marking the first annual increase in over a year, as reported by lender Nationwide. This growth underscores signs of a market recovery, fueled by easing mortgage rates.

In February, the average house price saw a 1.2% increase compared to the same month last year, rebounding from a 0.2% contraction in January. Economists surveyed by Reuters had anticipated a 0.3% month-on-month rise and a 0.7% year-on-year increase.

The average property price reached £260,420 after a 0.7% rise from January.

Robert Gardner, Nationwide’s chief economist, attributed this uptick in the housing market to declining borrowing costs at the start of the year.

These figures align with mounting evidence suggesting a recovery in the property market following last year’s pressure from higher borrowing expenses.

The Bank of England recently reported a higher-than-expected increase in mortgage approvals for January, reaching the highest level since October 2022. Additionally, BoE data indicates a further decline in mortgage rates from their peak in the summer of 2023.

Stephen Perkins, managing director at Norwich-based broker Yellow Brick Mortgages, noted the exceptional strength in early 2024 due to intense competition among mortgage lenders. However, he highlighted a degree of hesitancy among borrowers in making offers amidst recent increases in mortgage rates.

Imogen Pattison, an economist at Capital Economics, anticipates a slowdown in price gains in the near term. She predicts that the BoE will commence rate cuts in June, which could lead to a decrease in mortgage rates in the latter part of the year, consequently boosting demand.

Despite the current recovery, Nationwide reported that the average house price remains £13,000 below its peak in August 2022, reflecting the impact of higher borrowing costs. Nonetheless, it remains significantly higher than its pre-pandemic level in January 2020, attributed to the boom during the period of record low-interest rates in 2020 and 2021.