House costs report quickest development since December 2022

House prices recorded the fastest pace of annual growth since December 2022, according to Nationwide Building Society.

Britain’s biggest mutual revealed the average house price rose by 0.3 per cent between June and July.

Annually, house prices are up by 2.1 per cent, with the typical home now worth £266,334 – this is the biggest annual rise recorded over the past 18 months.

On the up: house prices increased by 0.3 per cent month on month in July, according to Nationwide, after taking account of seasonal effects

However, average prices are still around 2.8 per cent below the all-time highs recorded in the summer of 2022.

Nationwide uses seasonal adjustment to smooth out months that are typically more and less active in the housing market, and without that adjustment the average rose just 0.1 per cent between June and July.

Robert Gardner, chief economist at Nationwide says that the housing market is still in a state of flux as people continue to adjust to higher mortgage rates.

He said: ‘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. 

‘While this 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.

‘For example, for borrowers with a 25 per cent deposit, the rate on a five-year fixed rate deal has been around 4.6 per cent in recent months, more than double the 1.9 per cent average recorded in 2019. 

‘As a result, affordability is still stretched for many prospective buyers. Indeed, for an average earner buying a typical first-time buyer property, the monthly mortgage payment is equivalent to around 37 per cent of take-home pay, well above the 28 per cent prevailing pre-Covid and the long-run average of around 30 per cent.’

What next for house prices?

Knight Frank forecasts house prices to continue ticking up over the remainder of the year. 

Tom Bill, head of UK residential research at the estate agent, said: ‘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. 

‘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 per cent, which should produce UK house price growth of 3 per cent in 2024.’ 

Nicky Stevenson, managing director at national estate agent group Fine & Country suggests we could see prices rise further in the second half of the year.

‘July’s house price rise could mark a turning point for the property market and if interest rates drop today, optimists will be expecting a property boom in the latter half of 2024,’ said Stevenson.

Stevenson thinks a rate cut by the Bank of England could be a potential game-changer for the property market.

The Bank of England’s Monetary Policy Committee (MPC) is meeting later today to decide on base rate. Markets are divided over whether it will result in another hold at 5.25 per cent or a cut to 5 per cent.

She added: ‘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.’

No dramatic cuts forecast: The base rate is not expected to return to the rock bottom levels seen in 2021/22 meaning mortgage rates may not fall dramatically from where they are

However, Mr Gardner says future base rate cuts are already baked into fixed rate pricing and means buyers won’t notice much difference when it comes to their mortgage rates – even if base rate is cut.

‘Investors expect bank rate to be lowered modestly in the years ahead, which, if correct, will help to bring down borrowing costs,’ said Gardner. 

‘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.

‘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.’