UK house prices rose at their fastest annual rate since the end of 2022, a period when the property market was reeling from the impact of Liz Truss’s mini-budget.

According to mortgage lender Nationwide, house prices increased by 2.1% in July, up from 1.5% in June, with the average property price reaching £266,334.

Market recovery and the Bank of England’s upcoming decision

The latest data comes as the Bank of England prepares to decide on a potential interest rate cut.

The central bank’s base rate has been at a 16-year high of 5.25% for nearly a year. The decision is closely watched, as it could further influence the housing market’s trajectory.

Robert Gardner, Nationwide’s chief economist, noted that despite the recent gains, house prices are still approximately 2.8% below the peak levels of summer 2022.

Housing market activity has been holding relatively steady in recent months, with the number of mortgages approved for house purchases at around 60,000 per month.

This figure is about 10% below pre-pandemic levels but remains respectable given the higher interest rate environment.

Affordability challenges persist

Despite the positive trend in house prices, affordability remains a significant challenge for many buyers.

Gardner highlighted that for a typical first-time buyer, monthly mortgage payments now equate to around 37% of take-home pay, compared to 28% before the pandemic.

Gardner pointed out that investor expectations of a modest decrease in the Bank of England base rate in the coming years could help reduce borrowing costs.

However, he cautioned that the impact would be modest as current fixed-rate mortgage pricing already factors in anticipated rate declines.

 

Affordability is likely to improve only gradually through a combination of wage growth outpacing house price growth, with some support from modestly lower borrowing costs.

Market confidence and potential rate cuts

Alice Haine, an analyst at Bestinvest by Evelyn Partners, attributed the price increase to growing confidence in the housing market despite ongoing affordability pressures.

She suggested that a potential interest rate cut by the Bank of England could further catalyse market activity.

The housing market is exhibiting signs of a resurgence following its rocky ride in 2023 when high borrowing costs and low supply stifled activity.

She referenced data from Zoopla indicating that the number of sales agreed in the four weeks to July 21 jumped 16% compared to the same period last year. This surge, along with the highest number of homes on the market in six years, suggests that sellers are eager to capitalize on the improving conditions.

Nathan Emerson of Propertymark echoed this sentiment, highlighting the return of positivity to the housing market.

He emphasized that an interest rate cut, combined with the new government’s commitment to building nearly two million new homes by 2029, could rejuvenate the housing sector.

It has been widely anticipated that they may look to lower the base rate, and this combination of factors could lead to a rejuvenation for the housing sector.

The UK housing market is showing signs of recovery, with house prices rising at their fastest annual rate since late 2022.

While affordability challenges remain, growing market confidence and potential interest rate cuts from the Bank of England are fostering a positive outlook.

As the market continues to navigate these dynamics, the second half of the year is anticipated to bring further growth and stability.

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