"I expect house prices to see modest growth over the next few months, with any interest rate cut likely to give the numbers a boost, but the impact would likely be gradual rather than immediate."
- Iain McKenzie, CEO of The Guild of Property Professionals
UK house prices increased by 0.3% month on month in July, resulting in a pickup in the annual rate of house price growth from 1.5% in June, to 2.1% in July - the fastest pace since December 2022, according to the latest Nationwide house price index.
However, prices are still around 2.8% below the all-time highs recorded in the summer of 2022.
Robert Gardner, Nationwide's chief economist, said: “Housing market activity has been holding relatively steady in recent months with the number of mortgages approved for house purchase at around 60,000 per month. While this is still c.10% below the level prevailing before the pandemic struck, it is still a respectable pace given the higher interest rate environment.
“For example, for borrowers with a 25% deposit, the rate on a five-year fixed rate deal has been around 4.6% in recent months, more than double the 1.9% average recorded in 2019. As a result, affordability is still stretched for many prospective buyers. Indeed, for an average earner buying a typical first-time buyer property, the monthly mortgage payment is equivalent to around 37% of take-home pay, well above the 28% prevailing pre-Covid and the long-run average of c30%.
“Investors expect Bank Rate to be lowered modestly in the years ahead, which, if correct, will help to bring down borrowing costs. However, the impact is likely to be fairly modest as the swap rates which underpin fixed-rate mortgage pricing already embody expectations that interest rates will decline in the years ahead.
“As a result, affordability is likely to improve only gradually through a combination of wage growth outpacing house price growth (which is expected to remain fairly flat), with some support from modestly lower borrowing costs.”
Iain McKenzie, CEO of The Guild of Property Professionals, commented: "Competing signals on consecutive days perfectly portray the housing market’s current confused mood – transactions falling one day, and prices up the next.
“While it’s good news to see that annual growth is up to 2.1%, it’s important to remember that prices remain 2.8% below the peak levels seen in summer 2022.
“All eyes are now on the Bank of England, which has the power to change the way the wind is blowing once again as it decides on interest rates at lunchtime.
“While mortgage approvals have stabilised around 60,000 per month, this is still about 10% below pre-pandemic levels, showing restrained demand. Economic uncertainty may also be causing some potential buyers to be cautious about entering the market.
“I expect house prices to see modest growth over the next few months, with any interest rate cut likely to give the numbers a boost, but the impact would likely be gradual rather than immediate.
“The Bank of England's decision today will be particularly significant in shaping the near-term outlook for the housing market.”
Director of Benham and Reeves, Marc von Grundherr, added: “The fastest rate of house price growth since December 2022 demonstrates just how much market conditions have improved so far this year and it’s clear that buyer confidence is high, despite the fact that interest rates are yet to come down.
For those planning to make their move in 2024, now is the time to do so, as buyer demand is only likely to increase when interest rates are finally cut, making it very much a sellers market at present.”
