UK house prices are growing at their fastest annual rate for nearly two years as borrowing costs continue to fall on expectations that the Bank of England will keep cutting interest rates, Nationwide has said.
The building society said prices grew by 3.2% in September compared with the same month last year, well above the 2.4% annual growth recorded in August, and the fastest pace since the 4.4% recorded in November 2022.
The average house price across the UK was £266,094 in September – a 0.7% month-on-month increase on August and only 2% below the all-time high prices recorded in the summer of 2022.
Robert Gardner, Nationwide’s chief economist, said: “Income growth has continued to outstrip house price growth in recent months while borrowing costs have edged lower amid expectations that the Bank of England will continue to lower interest rates in the coming quarters.
“These trends have helped to improve affordability for prospective buyers and underpinned a modest increase in activity and house prices, though both remain subdued by historic standards.”
Lenders have been dropping their rates on new mortgage deals in recent months on the prospect of further cuts to the cost of borrowing after the Bank of England reduced its base rate from 5.25% to 5% in August, its first cut since March 2020.
In its last review, the BoE held rates at 5% and said that while interest rates were on the path down, it needed more evidence that they would remain low before further cuts.
Lenders such as Nationwide, Halifax and HSBC are now offering five-year fixed rates at below 4% for buyers for the first time since the start of the year.
Banks have also started lending more to borrowers in the last month, with Nationwide announcing last week it would start to offer first-time buyers loans at six times their annual household income. Lloyds and Halifax have recently upped their borrowing limits to 5.5 times household incomes.
The Nationwide figures, which also recorded performance over the third quarter of the year, showed that the increase in house prices in the north of England over that period outpaces those in the south.
The average house price across the three months to September 2024 grew by 3.1% in the north of England year-on-year, compared with 1.3% in the south.
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Northern Ireland recorded the biggest increase across the period, with an 8.6% growth in house prices, while Scotland experienced a 4.3% increase. Wales recorded a 2.5% rise.
Terrace houses continued to show the biggest annual increases in prices, with the average cost up by 3.5% in September. The average price for a flat increased by 2.7%.
Gardner said: “If we look over the longer term, however, detached homes have continued to have a slight edge over other property types, most likely due to the ‘race for space’ seen during the pandemic.
“Indeed, since Q1 2020, the price of an average detached property increased by nearly 26%, while flats have only risen by 15% over the same period.”