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UK house prices rose more than expected in February, posting their first annual increase in more than a year according to lender Nationwide, adding to evidence of a market recovery as mortgage rates eased.
The average house price was 1.2 per cent higher last month than in February last year, after a 0.2 per cent contraction in January. Economists polled by Reuters had expected 0.3 per cent month on month and 0.7 per cent annual increases.
Prices rose 0.7 per cent from January, taking the average property price to £260,420.
Robert Gardner, Nationwide’s chief economist, said: “The decline in borrowing costs around the turn of the year appears to have prompted an uptick in the housing market.”
The figures add to growing evidence that the property market is recovering from the squeeze from higher borrowing costs that hit homebuyers throughout last year.
On Thursday, the Bank of England said mortgage approvals rose more than expected in January to the highest level since October 2022. BoE data also showed mortgage rates falling further from their peaks in the summer of 2023.
Stephen Perkins, managing director at Norwich-based broker Yellow Brick Mortgages, said: “The start of 2024 was exceptionally strong as the mortgage rate war reigned supreme and demand went through the roof.” However, he added that while initial enquiries from borrowers continue to increase in February “there is now a degree of hesitation around pulling the trigger and making offers due to the recent increases in mortgage rates”.
Swap rates, which underpin fixed-rate pricing and are affected by interest rate expectations, have picked up this year after falling sharply at the end of 2023. This is because markets are reassessing how much the BoE will cut interest rates from its 16-year high of 5.25 per cent, because of sticky services inflation. This prompted some lenders to increase their mortgage rates in February.
Nationwide reported that the average house price was £13,000 below its peak in August 2022, reflecting the hit to the market from higher borrowing costs. However, the average price was still £44,000 above its level in January 2020, before the pandemic, following the boom seen during the period of record low-interest rates in 2020 and 2021.
Gardner said the pace of the housing market recovery could be threatened if the recent upward trend in swap rates continues.
Imogen Pattison, economist at Capital Economics, said price gains will only slow in the near term. She expects the BoE to start cutting rates in June, pushing down mortgage rates in the second half of the year. “That will provide another boost to demand later this year.”
