Nationwide: UK house price growth hits highest level since December 2022

UK house price growth hit a 19-month high in July but affordability pressures remain for buyers, according to Nationwide.

The latest Nationwide House Price Index suggests the property market may be turning a corner after a year where buyers and sellers have navigated sticky inflation, high mortgage rates and a general election.

That has made homeowners cautious about selling a property while purchasers have been hesitant about if now is the right time to buy a home and considering whether house prices will fall.

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With the general election out of the way, inflation hitting the Bank of England’s 2% target and interest rates now cut for the first time since March 2020, the latest figures from Nationwide suggests a more positive property market.

Average property prices rose 2.1% annually in July, according to Nationwide, which is the highest level since December 2022.

The figure is up from 1.5% in June and rose 0.3% on a monthly basis to £266,334.

Average house prices remain around 2.8% below the all-time highs recorded in the summer of 2022, Nationwide said.

Is the property market recovering?

Rising prices may be good for sellers, especially if you are using the proceeds of a sale to purchase your next home.

But Robert Gardner, chief economist for Nationwide, highlights that affordability remains stretched for homebuyers while mortgages rates are high.

He said: “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 circa 30%.

“Investors expect interest rates 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.”

It comes as Moneyfacts data shows the average two-year fixed rate mortgage has dropped from 5.78% to 5.77%, while the typical five-year fix is now at 5.38%, from 5.39% previously.

Best buy rates are also falling, with Nationwide releasing a sub-4% five-year mortgage deal last week.

Nicky Stevenson, managing director of premium estate agency brand Fine & Country, suggests  July’s house price rise could mark a turning point for the property market, especially once interest rates drop.

"A rate cut by the Bank of England could be a potential game-changer for the property market," she says.

"Lower interest rates typically translate into more affordable mortgages and we're already seeing lenders respond with more competitive deals ahead of the decision later today. 

"With the combination of rising house prices, stabilised inflation, and potentially lower interest rates, this could lead to a flurry of activity in the coming months - with more properties coming to market and a potential boost in transactions.

"But while these factors may fuel increased activity, the full effects will take time to unfold. Increased housing supply and ongoing affordability pressures will act as a counterbalance, and help to ensure that any market growth remains sustainable in the long term."

Buyers are being warned not to overstretch though.

“Average two-year mortgage rates may have come down from a short-term peak of 5.97%, but they’re still far higher than in recent years,” says Sarah Coles, head of personal finance for Hargreaves Lansdown.

“Meanwhile, average house prices are now almost back where they were at the peak of the market in 2022, so monthly mortgage payments are likely to be punishing. The last thing we need is to get carried away, and push ourselves into buying something we can’t really afford.”

Will house prices rise or fall in 2024?

Average prices had dropped earlier this year as high inflation and pricey mortgages reduced buyer purchasing power and hit demand.

The general election also slowed the market down in May and June, but there are signs that buyers are returning to the property market now that inflation has dropped and mortgage rates are being cut, which could push house prices higher.

“Property market momentum has been building steadily so far this year and, despite macro headwinds and the surprise of a snap election, we’re yet to see this momentum show any signs of slowing,” says Guy Gittins, chief executive of Foxtons.

“Bank of England data released earlier this week shows that monthly mortgage approvals are now sitting at consistently high levels as pent-up demand across the market has been released and this is helping to cultivate higher rates of house price growth across the UK market.

“At Foxtons, we’ve also noted a significant increase in both buyer enquiries and seller instructions since the start of the year and this is now bearing fruit with respect to the level of sales completing.”

Nationwide remains cautious, with Gardner warning that affordability is likely to improve only gradually, which could keep house price growth “fairly flat.”

Other commentators are more bullish though.

Property website Zoopla is predicting a 2% rise this year, while estate agency brand Knight Frank believes the figure could be higher.

“Despite the uncertainty of a general election, house prices were driven slightly higher this summer by the typical seasonal pattern of buyers needing to move for schooling or work,” says Tom Bill, head of UK residential research at Knight Frank.

“We expect transactions and demand to increase further this autumn as a rate cut moves closer and more mortgages dip below the psychological threshold of 4%, which should produce UK house price growth of 3% in 2024.”