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UK house prices rose more than expected in February, recording the first annual rise in more than a year according to lender Nationwide, adding evidence of a market recovery as mortgage rates ease.
The average house price last month was 1.2% higher than in February last year, following a 0.2% contraction in January. Economists polled by Reuters had expected increases of 0.3% month-on-month and 0.7% year-on-year.
Prices increased by 0.7% compared to January, bringing the average property price to £260,420.
Robert Gardner, chief economist at Nationwide, said: “The decline in borrowing costs around the end of the year appears to have sparked a recovery in the housing market.”
The data adds to growing evidence that the housing market is recovering from the squeeze caused by rising financing costs that hit homebuyers over the past year.
On Thursday, the Bank of England said mortgage approvals rose more than expected in January, to the highest level since October 2022. BoE data also showed that mortgage rates fell further from peaks in the summer of 2023.
Stephen Perkins, managing director of Norwich-based broker Yellow Brick Mortgages, said: “The start of 2024 was exceptionally strong as the mortgage rate war reigned supreme and demand skyrocketed.” However, he added, as initial inquiries from borrowers continue to increase in February “there is now some hesitancy to pull the trigger and bid due to recent increases in mortgage rates.”
Swap rates, which underlie fixed-rate prices and are influenced by interest rate expectations, have risen this year after falling sharply in late 2023. That’s because markets are reassessing the size of rate cuts of interest of the BoE compared to its 16-year plan. a maximum of 5.25%, due to the sticky inflation of services. This prompted some lenders to increase mortgage rates in February.
Nationwide reported that the average house price was £13,000 below its peak in August 2022, reflecting the hit to the market from rising financing costs. However, the average price was still £44,000 above its pre-pandemic January 2020 level, following the boom seen during the period of record low interest rates in 2020 and 2021.
Gardner said the pace of the housing market recovery could be threatened if the recent upward trend in swap rates continues.
Imogen Pattison, an economist at Capital Economics, said price rises would only slow in the short term. She expects the BoE to start cutting rates in June, pushing mortgage rates lower in the second half of the year. “This will provide another boost to demand later this year.”