UK house prices rise for first time in more than a year as interest rates drop

UK house prices grew for the first time on an annual basis in more than a year in February, as a decline in borrowing costs prompted an uptick in the housing market, according to a survey.

The average price of a home rose to £260,420 in February, up by 0.7% from the month before, and by 1.2% compared with a year earlier, according to Britain’s biggest building society Nationwide. This is the first annual growth since January 2023, and comes after a 0.2% year-on-year drop in January.

House prices are still about 3% below the record highs reached in the summer of 2022.

Buyers and sellers continued to return to the property market last month, and are expected to increase the number of home sales by 10% this year, according to the property website Zoopla.

The Nationwide chief economist, Robert Gardner, said: “The decline in borrowing costs around the turn of the year appears to have prompted an uptick in the housing market.”

He said industry data pointed to a noticeable increase in mortgage applications at the start of the year, while surveyors also reported a rise in new buyer inquiries.

However, uncertainty about the future path of interest rates remains high, he said. He added that after falling sharply in late December, swap rates, which underpin fixed-rate mortgage pricing, have drifted back up.

While borrowing costs remain well below the highs recorded last summer, if this recent upward trend is sustained, it threatens to restrain the pace of any housing market recovery, he said.

“While the squeeze on household budgets is easing, with wage growth now outstripping inflation by a healthy margin, it will take time to make up for the ground lost over the past few years, especially given consumer confidence remains fragile,” he added.

Tom Bill, the head of UK residential research at the upmarket estate agent Knight Frank, said: “Buyers feel confident that the only way for the base rate is down, which has seen demand and house prices pick up in recent months. However, the upwards pressure on mortgage rates in recent weeks shows sellers the importance of getting the asking price right. Banks are keen to lend and should eventually lower rates this year as inflation comes under control, which we believe will sustain positive annual growth in 2024 and see UK house prices increase by 3%.”

Jeremy Leaf, a north London estate agent and a former Royal Institution of Chartered Surveyors residential chair, warned against focusing too much on property prices when assessing how the housing market is performing.

“Prices impact buyer and seller confidence but transactions and affordability, which is most stretched in higher-value areas such as London, are arguably more relevant,” he said.

“In our offices, more valuations, listings and viewings combined with fewer fall-throughs than this time last year are feeding through to agreed sales, mortgage approvals and exchanges.”