Nationwide: House price growth slows but remains resilient

House prices remained positive in the first month of the year despite ongoing affordability pressures. Prices are 4.1% higher than a year ago, according to Nationwide’s House Price Index, and 0.1% higher than this time last month.

The rate of growth has softened compared to December, when the annual and monthly rates came in at 4.7% and 0.7% respectively.

Although house price affordability has improved slightly over the past year with wages outstripping house price inflation, many buyers are still stretched.

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“A prospective buyer earning the average UK income and buying a typical first-time buyer property with a 20% deposit would have a monthly mortgage payment equivalent to 36% of their take-home pay – well above the long-run average of 30%,” said Robert Gardner, Nationwide’s chief economist.

This means that the average first-time buyer needs to have either a high salary, a hefty deposit, or help from the Bank of Mum and Dad. The average first home now costs five times a buyer’s earnings, while the average rate on a two-year fixed-rate mortgage is 5.52%. This falls slightly to 5.32% on a five-year deal.

Will house prices rise further in 2025?

Affordability pressures aside, house prices should continue to grow over the next couple of months at least, as buyers rush to beat the stamp duty deadline on 31 March. After this date, the threshold at which buyers start paying tax will drop from £250,000 to £125,000, or from £425,000 to £300,000 for first-time buyers.

“Another motivating factor could come next week if the Bank of England delivers a third rate cut, a move likely to give slightly improving affordability levels another boost,” said Alice Haine, personal finance analyst at investment platform Bestinvest.

She added: “The combination of easing inflation, robust wage growth and cuts in borrowing costs can support buyers in their quest to secure the home they want, though affordability levels remain stretched by historical standards.

“Add in the prospect of more support from the government if proposals to loosen lending rules go ahead and the outlook for first-time buyers and those looking to refinance or upsize may certainly be improving.”

It comes after the prime minister, the chancellor and the business secretary wrote to regulators in December asking them for proposals on how to boost UK growth. In response, the Financial Conduct Authority agreed to look at simplifying lending rules, as well as weighing up whether access to lending is too cautious.

Despite this, we are likely to see a year of two parts when it comes to the housing market, with experts warning that the number of people moving is likely to slow in the immediate aftermath of stamp duty changes.

Is now a good time to buy or sell a house?

Separate data from Zoopla shows that buyer demand is 13% higher than a year ago, with 10% more homes for sale and 12% more sales agreed. The average estate agency branch now has 31 homes listed for sale on its books – the highest January total for seven years.

Sellers should think carefully about how they can stand out with buyers – including getting the price right the first time. Languishing on a property listing website (or in an estate agent’s window) is better avoided.

Those who are thinking about buying might be holding off for a further drop in borrowing costs as interest rates come down. However, it is worth pointing out that the potential savings could be wiped out by a further rise in house prices.

Those renting in the meantime are also paying out a record amount in monthly rents, which is hurting their ability to save.

“If you’re in this position, it’s worth talking to family, especially if they’re considering making gifts in order to deal with an inheritance tax threat,” said Sarah Coles, head of personal finance at the investment platform Hargreaves Lansdown. Forty percent of buyers get help from family or friends, according to figures from Nationwide.

Alternatively, prospective buyers can consider getting help from the government in the form of a Lifetime ISA, which offers a 25% bonus on savings (or a maximum of £1,000 per tax year). Just remember to read up on the rules around withdrawals, as breaking them could cost you.