House prices have risen by 1.2% year on year, the first time that the annual rate of change has been positive for more than 12 months, according to Nationwide’s latest house price index.
In contrast the annual change in house prices was down by 0.2% in January.
Its figures showed the property prices rose by 0.7% in February, making the average house now worth £260,420.
Overall its seasonally-adjusted figures show that property prices are now around 3% below the all-time highs recorded in the summer of 2022.
Nationwide’s chief economist Robert Gardner says: “The decline in borrowing costs around the turn of the year appears to have prompted an uptick in the housing market. Indeed, industry data sources point to a noticeable increase in mortgage applications at the start of the year, while surveyors also reported a rise in new buyer enquiries.”
However, despite this more upbeat picture Gardner stressed that it remains a challenging market. “Near-term prospects remain highly uncertain, in part due to ongoing uncertainty about the future path of interest rates.”
He points out that after falling sharply in late December, swap rates, which underpin fixed rate mortgage pricing, have drifted back upwards, with a number of lenders recently removing sub 4% rates.
Gardner adds: “Borrowing costs remain well below the highs recorded last summer but, if the recent upward trend is sustained, it threatens to restrain the pace of any housing market recovery.
“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.”
This house price index chimes with other economic data signalling increased activity in the property market. Bank of England data has shown an increase in mortgage approvals in January, while figures from property website Zoopla show an increase in sellers listing properties for sale.
Pantheon Macroeconomics chief UK economic Samuel Tombs said that these forward-looking indicators “suggest this housing market revival has legs”.
He adds: “We continue to look for a 5% rise in house prices over the next 12 months, broadly in line with the likely increase in nominal wages and the current trend pace of increase in the main house price indices.”
SPF Private Clients chief executive Market Harris says confidence was returning to the housing market with a more stable economic backdrop. “With a growing feeling that base rate has peaked, and the next move in rates will be downwards, this is supporting buyer and seller confidence and boosting activity in the market.
“Mortgage rates are more attractively-priced than they were several months ago, even if the ‘best buy’ deals have been pulled recently.
“There will be ups and downs in mortgage pricing in the weeks and months ahead but there is a growing feeling of optimism that the situation is improving, which will be welcomed by hard-pressed borrowers.”
TML distribution director Sara Palmer agreed that positive notes from the Bank of Englandhas encouraged buyers back into the market. “The winter chill hasn’t kept home buyers at bay with the latest Nationwide HPI figures for February revealing an uptick in house prices, pointing to an increase in demand. No doubt this has been helped by recent reports that members of the Bank of England’s Monetary Policy Committee have begun to vote for a decrease in interest rates, sparking optimism that rate cuts will be seen in the near future.”
She adds: “All eyes will also be on next month’s Budget, with many hoping that strides will be made to help solve the current affordability challenges within the market. It’s vital that any new initiative introduced aims to solve the challenge for the long term; incentivising more supply into the market to meet demand.
“Experience has shown that short-term solutions have only stoked the fires of price inflation and widened the rungs of the property ladder for many.”
Hargreaves Lansdown head of personal finance Sarah Coles warned that despite this more positive figures, challenges remain. “The momentum of moderating mortgages fuelled a first-class February, and hiked house prices, pushing them into positive territory for the first time in over a year.
“For months at the end of 2023, buyers were sitting on their hands, waiting for a break in the clouds. Now they’ve snapped up cheaper deals and are hunting for a new home. However, there are flies in the soothing balm of a positive property market and the momentum of lower mortgage rates in January can only carry us so far.”
She pointed out that mortgage rates had been falling but are starting to rise again. “At the start of February, according to Moneyfacts, the average 2-year rate was 5.56%, and by the end of the month it was 5.75%. This isn’t a dramatic movement, but the direction of travel is important. If rates keep drifting up, we could see buyers hit pause.”
