Nationwide reveals ‘subdued’ housing market despite strongest growth since mini-Budget

House price inflation has risen to its highest level since December 2022, the latest Nationwide House Price Index (HPI) has shown. But seasonally adjusted prices grew at a lower rate than analysts had expected.

The average home cost £261,142 as of March 2024, 1.6% more than it did a year ago. It means the first quarter of the year has been the strongest for house price inflation since Q4 2022, when the housing market was reeling from Liz Truss’s mini-Budget.

Despite the positive news, prices were actually down month-on-month when seasonal impacts were factored in. The building society found that they fell 0.2% compared to February’s HPI on a seasonally adjusted basis - a 0.9% reversal on the previous month - with the unexpected rise in mortgages in early 2024 being blamed for the drop.

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Other recent HPIs have shown a muted recovery in house prices and market activity, although most still have them as being down against the year. You can track prices in your area using the Office for National Statistics’ new house price tracking tool.

Mortgage rates appear now to be on a downward trajectory. While the Bank of England base rate remains at a 16-year high of 5.25%, interest rates are expected to fall over the coming months. Inflation is fast approaching the Bank’s 2% target having fallen significantly in February.

Nationwide House Price Index: market activity still ‘relatively subdued’

While average house prices rose £722 month-on-month in real terms, prices were measured as being 0.2% down on a seasonally-adjusted basis. This is because the housing market tends to be at its busiest in the spring, so Nationwide has to take the knock-on impact on prices into account to give an accurate snapshot of prices in its HPI.

Analysts had expected the building society’s index to record a 0.3% rise after seasonal impacts had been accounted for. Interactive Investor’s head of investment, Victoria Scholar, said the slight drop indicated that the rise in mortgage rates seen at the start of 2024 had “pushed individuals and families away from the sales market towards the lettings market instead where rental costs have been rising at a record pace”.

Indeed, Nationwide’s research also found that, while housing market activity has improved, it remains “relatively subdued by historic standards”. It pointed to mortgage approval data, which suggested buyer numbers are down by around 15% compared to before the Covid pandemic.

According to Nationwide’s chief economist, Robert Gardner, "this largely reflects the impact of higher interest rates on affordability. While mortgage rates are below the peaks seen in mid-2023, they remain well above the lows prevailing in the wake of the pandemic.”

He added: “With cost-of-living pressures easing as inflation moves back towards target, consumer sentiment is improving. Indeed, surveyors report a pickup in new buyer enquiries and new instructions to sell in recent months.

“Moreover, with income growth continuing to outpace house price growth by a healthy margin, housing affordability is improving, albeit gradually. If these trends are maintained, activity is likely to gain momentum, though the pace of the recovery is still likely to be heavily influenced by the trajectory of interest rates.”

In light of Nationwide's findings, the consultancy Capital Economics said it expected house prices “to flatline over the summer” as mortgage rates will remain elevated until the Bank of England gives “firmer evidence” that it will cut rates significantly.

Northern Ireland sees ‘strongest house price growth’

Breaking its data down into UK nations and regions, Nationwide found Northern Ireland recorded the strongest growth in house prices. On a quarterly basis, prices grew 4.6% to an average of £181,303.

The North of England and Scotland also performed strongly, with prices up 4.1% and 3.7% respectively. The weakest growth was seen across southern parts of England, with the South West leading the way with an annual decrease for Q1 of 1.7%. 

London returned to growth, with prices rising 1.6% having fallen 2.4% year-on-year in the final quarter of 2023. The average price in the capital between January and March stood at £519,505.