House prices jump 0.8% in July and could soar higher due to rate cut

House prices jumped 0.8% last month, giving an annual growth figure of 2.3% - the highest since January 2024.

According to the latest Halifax house price index, a typical UK property now costs £291,268. The rise in house prices follows a flat few months. In June, average house prices fell by 0.2% on a monthly basis. However, last week’s interest rate cut – with further cuts to interest rates expected – means the lender is now predicting that house prices will continue to edge up this year.

Amanda Bryden, head of mortgages at Halifax, comments: “Last week’s Bank of England base rate cut, which follows recent reductions in mortgage rates, is encouraging for those looking to remortgage, purchase a first home or move along the housing ladder. 

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“Against the backdrop of lower mortgage rates and potential further base rate reductions, we anticipate house prices to continue a modest upward trend throughout the remainder of this year.”

Will house prices rise further this year?

After three months of stagnation, the bigger-than-expected rise in house prices in July shows that house prices are bouncing back. The consensus forecast for the Halifax data had been a more modest monthly increase of 0.3%, according to the consultancy Capital Economics. The Nationwide house price index, released last week, also showed growth in monthly house prices. The lender said prices rose 0.3% in July, and 2.1% annually - the highest since December 2022.

Experts believe the housing market is heating up and we could see more house price growth in the coming months. Much of this is to do with interest rates, while buyers and sellers will also want to keep an eye on any housing-related announcements from the government.

Last week, the base rate dropped from 5.25% to 5%, the first cut by the Bank of England in more than four years. There are three more base rate meetings to come this year, with markets currently pricing in one, or two, more interest rate cuts.

As a result, mortgage rates have been falling over the past month. The average two-year fixed mortgage rate is now 5.74%, down from 5.9% in mid-July, according to the analyst Moneyfacts and the average five-year deal is 5.36%, down from 5.49%.

Some property buyers can now get their hands on a 3.99% mortgage, courtesy of Nationwide which, in July, became the first major lender to offer a sub-4% deal since February.

Holly Tomlinson, a financial planner at the wealth manager Quilter, notes: “The drop in rates does a lot for buyer and seller confidence.

“A feeling that rates are going in the right direction will help many people decide to take the leap back into the market, pushing up demand for homes. Those on the fence about selling their home may also feel the time is now right.

“The autumn may therefore prove to be busier than anticipated.”

Capital Economics is expecting house prices to grow by 1% this year but admits that prices could rise even faster. 

Ashley Webb, UK economist, comments: “The recent fall in the two-year interest swap rate from 4.25% at the end of July to 4.08% now due to investors’ US recession fears poses a further upside risk to our forecast for house prices to grow by just 1.0% in 2024.”

He adds: “If sustained, the sharp fall in the 2-year interest swap rate suggests that those lenders that haven’t yet reduced their mortgage rates will be able to cut them too. And while we think the Bank of England will hold off until November before cutting interest rates again, the risks are now skewed to the next cut happening a bit sooner than we anticipate. That may mean house price growth accelerates quicker than we expect over the rest of this year.”

What should property buyers and sellers watch out for?

The first thing to note is that while house prices are heading north again, experts believe we will see “modest growth”. 

So, we’re unlikely to see runaway house prices and a boom year in 2024.

Second, it's worth keeping an eye on what the government may do, in terms of housebuilding, any sweeteners for first-time buyers, and tax changes that affect buy-to-let investors. We could see announcements in Labour’s first Budget on 30 October.

Sarah Coles, head of personal finance at the investment platform Hargreaves Lansdown, explains: “If Rachel Reeves boosts the capital gains tax rate to match income tax, a higher-rate taxpayer would see their tax bill rise by two thirds when they come to sell. 

“There will be property investors who decide it's not worth this risk and will sell up before any potential change comes in. If there are too many of them, it could create a glut of property for sale and keep prices down.”

Third, affordability is still an issue. Rising house prices, and mortgages that remain fairly expensive, make it difficult for first-time buyers to get on the property ladder.

Bryden at Halifax notes: “Affordability constraints and the lack of available properties continue to pose challenges for prospective homeowners.”

Some first-time buyers will rely on significant help from the Bank of Mum and Dad, while others may take out ultra-long mortgages that run past retirement age. 

Tomlinson at Quilter says the question of affordability “will end up being a difficult area for the government to truly tackle, as while supply and demand play a large part in why house prices are rising, an even bigger piece of the puzzle is slow wage growth when compared to house price inflation”.

Which regions are seeing the strongest house price growth?

According to Halifax, Northern Ireland continues to record the strongest property price growth in the UK, rising by 5.8% (on an annual basis) in July, up from 4.1% the previous month. This is the highest increase since February 2023. The average price of a property in Northern Ireland is now £195,681. 

House prices in the North West also recorded strong growth, up 4.1% compared to the previous year. Properties there now average £232,489. In Wales, annual house prices grew 3.4% to £221,102 – the highest price seen since October 2022. Scotland also saw a rise in house prices; a typical property now costs £205,264, up 2.1% compared to a year ago.

The only region to record a fall across the UK was Eastern England. The average home now costs £330,282, down 0.4%, on an annual basis.

London continues to have the most expensive property prices in the UK. The average home in the capital now costs £536,052, up 1.2% compared to last year.

Source: Halifax, July 2024