Stay informed with free updates
Simply sign up for myFT Digest of UK house prices – delivered straight to your inbox.
UK house prices rose more than expected in January, according to mortgage provider Nationwide, as easing mortgage interest rates helped stabilize the property market.
Data published on Wednesday showed that home prices rose 0.7 percent between December and January, the fastest pace since October.
The figure was much higher than economists polled by Reuters had expected a 0.1% increase, bringing the average house price to £257,656.
Jake Stott, founder of Manchester-based broker Mondo Mortgages, said the increase in Nationwide data “highlights the optimism emerging after a turbulent 2023”.
“Since lenders decided to cut interest rates at the beginning of the month, we have seen first-time buyers emerge like daffodils in the spring,” he added.
The data provides further signs that the UK property market is improving, with mortgage rates falling amid expectations that the Bank of England will cut interest rates this year.
The housing market's resilience signals a more positive outlook for the broader economy and will be closely watched by policymakers ahead of the Bank of England's meeting on Thursday, when the bank is widely expected to keep its benchmark interest rate at a 15-year high of 5.25 per cent.
The average new mortgage rate fell in December for the first time since November 2021 and mortgage approvals rose to the highest level in six months, Bank of England data showed on Tuesday.
Interest rates on popular deals, such as two-year fixed-rate mortgages with a 60 per cent loan-to-value ratio, have fallen since the summer, reflecting expectations of lower borrowing costs.
“There have been some encouraging signs for potential buyers recently as mortgage rates continue to decline,” said Robert Gardner, Nationwide's chief economist.
Experts also noted that rising real wages and easing inflation from its peak in 2022 also helped support house prices.
Nationwide reported that the annual contraction in home prices in January fell to minus 0.2 percent, from minus 1.8 percent the previous month.
The average house price remains £16,000 below its peak of £273,750 reached in August 2022, when the property market was hit by rising interest rates.
However, prices remained around £42,000 higher than in January 2020, reflecting the pandemic boom when record low interest rates boosted demand.
Recommended
Nationwide has warned that raising deposits remains a major challenge for homebuyers. She calculated that a 20 percent deposit on a typical first-time buyer's home is now about 105 percent of her average annual gross income.
This is lower than the all-time high of 116 percent recorded in 2022, but still close to the pre-financial crisis level of 108 percent.
However, the outlook for the property market is brightening as mortgage rates continue to fall and real household income is expected to improve as inflation falls further.
The period of low nominal house prices “is now behind us,” said Andrew Goodwin, chief UK economist at Oxford Economics. With popular mortgage rates falling since the middle of last year, “the outlook for the housing market now looks significantly better than it did in 2023,” he said.
Bonus Season – Are you headed for a payout or a donut?
For the third year in a row, the Financial Times is asking readers to confidentially share their predictions for 2024 rewards, and whether you plan to invest, save or spend the money. Tell us via a short survey
