UK house prices bounce back as mortgage rates fall

The UK housing market showed signs of recovery in January, as the annual rate of house price growth improved from -1.8% in December to -0.2% in January, the strongest performance since January 2023.

According to the Nationwide house price index, prices increased by 0.7% in January, after adjusting for seasonal factors.

This is the second consecutive monthly price rise, following a 0.4% increase in December.

One of the main drivers of the housing market recovery was the continued decline in mortgage rates and a change in investor expectations of rate rises.

‘Rebound in activity or house prices in 2024 appears unlikely’

Robert Gardner, Nationwide’s chief economist, said: “While a rapid rebound in activity or house prices in 2024 appears unlikely, the outlook is looking a little more positive.

“The most recent RICS survey suggests the decline in new buyer enquiries has halted, while there are tentative signs of a pickup in the number of properties coming onto the market.”

He added: “How mortgage rates evolve will be crucial, as affordability pressures were the key factor holding back housing market activity in 2023.

“Indeed, at the end of 2023, a borrower earning the average UK income and buying a typical first-time buyer property with a 20% deposit had a monthly mortgage payment equivalent to 38% of take-home pay – well above the long run average of 30%.”

‘Happy New Year for sellers’

Sarah Coles, the head of personal finance at Hargreaves Lansdown, said: “It has been a happy New Year for sellers, many of whom are celebrating having finally sold up.

“After a flat December, falling mortgage rates brought a bit of sparkle back to the market, and breathed some life into property sales.

“This has made a real difference, but it’s not going to solve a major issue that’s keeping an awful lot of buyers away right now.”

She added: “The rise is the biggest since the same time last year, reflecting that some of this comes down to a seasonal jump in people keen to move home at the start of the year.”

‘Seeing real signs of some recovery in the market’

Tomer Aboody, a director of property lender MT Finance, said: “We are seeing real signs of some recovery in the market, with buyers and sellers appearing more confident.

“The pause in interest rate rises, along with mortgage rates coming down, some to sub 4%, means buyers some affordability concerns are easing.

“With inflation less than half what it was just 12 months ago, and therefore potentially more money in consumers’ pockets at the end of each month, buyers are feeling more motivated.”

‘Started the year where it left off in 2023’

Verona Frankish, the chief executive of Yopa, said: “The property market has started the year where it left off in 2023 – very much on the front foot.

“We’re seeing buyers return with confidence, spurred on by a reduction in mortgage rates, and there has also been an increase in for sale stock reaching the market as sellers look to ride this wave of improving market sentiment.

“While we expect that interest rates will remain at 5.25% this week, this will only help to steady the market further, providing buyers with the confidence that they can proceed with their purchase without the goal posts of mortgage affordability moving during the process.”

‘Yet more predictions of a property market demise’

Marc von Grundherr, a director of Benham and Reeves, said: “Those who were quick out of the blocks at the start of the year with yet more predictions of a property market demise are already reaching for a flannel to wipe the egg off of their faces.

“We’ve seen a coiled spring of buyer demand developing in recent months and with mortgage rates having fallen in 2024, this is now starting to unwind as buyers look to make hay while the sun is shining.”

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