House prices are rising at their fastest rate since the end of 2022, with the housing market “holding relatively steady” even though many people are still struggling to afford their first home.
Compared with this time last year, house prices have increased by 2.1 per cent to an average of £266,334, according to Nationwide, Britain’s third-largest mortgage lender.
That is the largest year-on-year increase since December 2022, shortly after Kwasi Kwarteng and Liz Truss’s “mini-budget” spooked financial markets, sent borrowing costs spiralling and triggered an almost immediate downturn from which the property market is yet to fully recover.
Prices have risen in each of the past three months, with Nationwide estimating that they edged 0.3 per cent higher in June.
Both readings — the month-on-month change and the annual rate of inflation — were slightly ahead of what economists had been expecting. The forecast had been for a 0.1 per cent monthly rise and for the year-on-year increase to come in at 1.8 per cent.
Typically, there is a slowdown around elections as would-be movers wait for any uncertainty to clear up, but estate agents have said that they have not seen much, if any, impact this time around.
Most think that this is because many people who had wanted to move had delayed doing so for the past couple of years and so were going ahead regardless. Others suggested that, with Labour always the heavy favourites to win, there was less uncertainty this year.
“Housing market activity has been holding relatively steady in recent months, with the number of mortgages approved for house purchase at around 60,000 per month,” Robert Gardner, Nationwide’s chief economist, said.
“While it is still around 10 per cent below the level prevailing before the pandemic struck, it is still a respectable pace, given the higher interest rate environment.”
Nationwide’s data shows that the typical mortgage rate for someone with a 25 per cent deposit on a five-year fixed deal was around 1.9 per cent in 2019. Currently, it is around 4.6 per cent, though that is down from above 6 per cent last summer.
Even with rates having eased back from their highs, Gardner noted that “affordability remains stretched for many prospective buyers”.
For someone on the average UK salary buying a typical first-time buyer home, the monthly mortgage payment is equivalent to about 37 per cent of take-home pay, compared to 28 per cent before the pandemic and the long-run average of 30 per cent.
The recent retreat of mortgage rates reflects the growing anticipation that a cut to interest rates is around the corner. Financial markets think that if it does not come later today, then the Bank of England will pull the trigger at the next meeting in September.
Further rate cuts are expected over the next year or two, though Gardner thinks that these will have a “fairly modest” impact on mortgage rates, given that many lenders have already baked in those expectations to their pricing.
“As a result, affordability is likely to improve only gradually through a combination of wage growth outpacing house price growth, which is expected to remain fairly flat, with some support from modestly lower borrowing costs,” Gardner said.