UK house prices have seen their first annual increase in over a year in February, buoyed by a decline in borrowing costs according to a survey conducted by Nationwide.

The average price of a home climbed to £260,420, marking a 0.7% rise from the previous month and a 1.2% increase compared to a year earlier. This uptick represents the first annual growth since January 2023, following a slight year-on-year drop of 0.2% in January.

Although house prices are still approximately 3% below the record highs observed in the summer of 2022, buyers and sellers are returning to the market, with the property website Zoopla forecasting a 10% increase in home sales for the year.

Robert Gardner, Chief Economist at Nationwide, attributed this resurgence in the housing market to the decline in borrowing costs around the turn of the year. Mortgage rates have eased since reaching a 15-year high in July, with the Bank of England’s base rate currently peaking at 5.25%, significantly below the previous market estimates.

The recent drop in mortgage rates, coupled with the ongoing mortgage price war, has led to more competitive deals, some below 4%, stimulating demand in the housing market. Data from the Bank of England indicates a rise in new mortgage approvals in January, although lending remains subdued compared to historical levels.

Despite the recent uptick in swap rates, Gardner emphasized the uncertainty surrounding future interest rate movements, which could potentially restrain the pace of housing market recovery if sustained.

While household budget pressures are easing and wage growth surpasses inflation, Gardner cautioned that it will take time to recover ground lost in previous years, particularly given fragile consumer confidence.

Looking ahead, financial markets anticipate potential interest rate reductions by the Bank of England, which could further stimulate housing market activity. Tom Bill, Head of UK Residential Research at Knight Frank, noted that buyers are confident in the prospect of declining base rates, but emphasized the importance for sellers to price their properties accurately amidst recent fluctuations in mortgage rates.

Jeremy Leaf, a North London estate agent, cautioned against solely focusing on property prices, highlighting increased valuations, listings, and viewings as positive indicators of housing market performance.