UK house prices are rising at their fastest annual rate in nearly two years, driven by falling borrowing costs and expectations of further interest rate cuts from the Bank of England, according to Nationwide.
The building society reported a 3.2% year-on-year increase in house prices for September, a significant jump from the 2.4% growth recorded in August, marking the strongest annual growth since November 2022, when prices rose by 4.4%.
In September, the average house price in the UK reached £266,094, reflecting a 0.7% month-on-month increase from August. This is only 2% below the all-time high reached during the summer of 2022.
Improving Affordability and Rising Activity
Robert Gardner, Nationwide’s chief economist, noted that recent trends have helped ease affordability concerns for potential buyers. He explained, “Income growth has outpaced house price growth in recent months, while borrowing costs have dropped as expectations grow that the Bank of England will continue lowering interest rates in the coming months. These factors have improved affordability for prospective buyers and supported a modest uptick in both activity and house prices, although both remain subdued by historical standards.”
Mortgage Approvals and Lending on the Rise
Data from the Bank of England showed an increase in mortgage approvals, rising to 64,900 in August from 62,500 in July. This reflects a boost in housing market activity, driven by lower borrowing costs and strong real wage growth. Net mortgage lending also saw an increase, reaching £2.9 billion in August, up by approximately £100 million compared to July.
In addition, consumer borrowing increased slightly, with consumer credit rising from £1.2 billion to £1.3 billion. Economists believe this suggests continued resilience in household finances. Ashley Webb, a UK economist at Capital Economics, commented, “This trend aligns with our view that consumer spending growth will strengthen in the coming quarters.”
Household Savings and Economic Growth
The Office for National Statistics (ONS) reported that the household saving ratio rose to 10% in the second quarter of 2024, up from 8.9% in the first quarter. However, the ONS also revised down its estimate for UK economic growth between April and June. The economy grew by 0.5%, down from the previously estimated 0.6%, due to weaker-than-expected performance in manufacturing and construction.
Mortgage Rates and Lender Flexibility
Mortgage lenders have been lowering rates on new deals in anticipation of further cuts to borrowing costs. Following the Bank of England’s decision to reduce its base rate from 5.25% to 5% in August—its first rate cut since March 2020—lenders such as Nationwide, Halifax, and HSBC are now offering five-year fixed mortgage rates below 4%, a level not seen since the start of the year.
While the Bank of England kept rates unchanged at its most recent meeting, it indicated that borrowing costs are “now gradually on the path down” from the peak levels experienced since the 2008 financial crisis.
In response to the changing market, lenders have begun offering more flexibility in their borrowing criteria. For example, Nationwide announced it would provide first-time buyers with loans worth six times their annual household income. Lloyds and Halifax have also recently increased their borrowing limits to 5.5 times household incomes.
Regional House Price Growth
Nationwide’s data, which covered the third quarter of 2024, revealed that house price growth in the north of England outpaced that of the south during this period. The average house price in the north increased by 3.1% year-on-year, compared to a 1.3% rise in the south.
Northern Ireland saw the largest regional increase, with house prices growing by 8.6% over the quarter. Scotland also recorded a healthy increase of 4.3%, while Wales experienced a more modest 2.5% rise.
Property Types and Price Trends
Among property types, terraced houses showed the biggest annual price increases, with average costs rising by 3.5% in September. Flats also saw price growth, with a 2.7% increase in average prices year-on-year.
This article provides a comprehensive overview of the UK housing market in 2024, highlighting the factors driving house price growth and changes in the mortgage lending landscape. Stay updated on market trends and property price forecasts as we move into 2025!
