Nationwide: Average house prices rose in January – will property values recover in 2024?

Average house prices rose between December and January while annual growth is slowing, Nationwide figures have revealed.

The latest Nationwide house price index, based on the building society’s mortgage lending activity, shows average house prices rose 0.7% on a monthly basis during January to £257,656.

Average house prices remain down on a yearly basis, declining 0.2% in January, but that is an improvement on the 1.8% decline reported in December.

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It comes as homebuyer confidence has been buoyed by slowing inflation and falling mortgage rates, making people more confidence about the costs of buying a property.

But Robert Gardner, chief economist at Nationwide, warns that a “rapid rebound” is unlikely, and raising a mortgage deposit remains a major issue for buyers.

Other house price indices have reported a strong start to the year, with the Rightmove house price index showing asking prices rose at their fastest rate for two years in January, while Zoopla has recorded a rise in demand.

It comes ahead of the Bank of England’s latest decision on interest rates this week.

“The precarious nature of the economy had left many prospective buyers in ‘wait and see’ mode, reluctant to buy a new home in the hopes of securing lower rates further down the line, but we are now seeing tentative signs that people are making a return to the market,” says Karen Noye, mortgage expert at Quilter.

“Should mortgage rates continue to fall then more may be lured back to the market sooner which would help to buoy prices further.”

Nicky Stevenson, managing director at estate agent group Fine & Country, said the housing market has started the year strongly.

“The housing market has been resilient during a turbulent period for the economy, and although the recent rise in inflation is a reminder that there could be more bumps ahead, there are many reasons to be positive,” she says.

“Mortgage approvals continue to rise month on month, as buyers return to the market at a steady rate. Many of them have been enticed to begin or resume their property search as a result of falling interest rates. 

“Yet the Bank of England has a big decision on its hands when it decides what will happen with the base rate.  

“Another pause in rate hikes, or even a fall, will keep encouraging buyers to the market, but a move in the opposite direction could put a bit of a damper on activity in the early part of 2024.” 

Will house prices recover in 2024?

Many analysts have predicted that prices will drop further this year as affordability pressures remain and mortgage rates are still higher than many borrowers and buyers have been used to in recent years.

“While a rapid rebound in activity or house prices in 2024 appears unlikely, the outlook is looking a little more positive,” adds Gardner.

“The most recent RICS survey suggests the decline in new buyer enquiries has halted, while there are tentative signs of a pickup in the number of properties coming onto the market.”

Much will depend on the direction of mortgage rates.

“At the end of 2023, a borrower earning the average UK income and buying a typical first-time buyer property with a 20% deposit had a monthly mortgage payment equivalent to 38% of take-home pay – well above the long run average of 30%,” says Gardner.

"If average mortgage rates were to trend down to 4%, this would ease the mortgage payments burden to 34% of take-home pay, assuming house prices and earnings are unchanged. 

“However, mortgage rates of 3% would be needed to bring this measure of affordability back towards its long run average.”

Nationwide has previously predicted that average prices will either be flat this year or drop by up to 2% depending on mortgage rates, while others such as Halifax and Zoopla have forecast declines of 2% to 4%.

Others are more positive.

Tom Bill, head of UK residential research at Knight Frank, suggests that UK house price declines are bottoming out as the economic news improves.

“Inflation has fallen faster than predicted, which means financial markets believe rates will drop by a full percentage point in 2024,” he says.

“Whatever the Bank of England decides to do, mortgage lenders set their rates based on these lower expectations, which is increasing demand. Mortgage approvals are creeping up and we expect UK house prices to rise by 3% this year. A general election later rather than sooner would allow more momentum to build.”