UK house prices rise for third successive month as interest rate cut speculation mounts
UK house prices have risen slightly for the third successive month in best results for nine months as investors have a more optimistic outlook for interest rates.
The latest Nationwide House Price Index shows UK house prices have grown 0.2 per cent from October to November, although they are still down two per cent on last year.
Nationwide’s chief economist, Robert Gardner, said: “While this remains weak, it is the strongest outturn for nine months.”
The year-on-year fall in prices has been driven by interest rate increases filtering through to the wider UK economy – not least in mortgage rates, which shot up earlier this year.
However changes in interest rate future path expectations – with markets now beginning to believe we have reached the peak on interest rates and that the Bank of England may move to cut them as early as next summer – have given the market some momentum.
“These shifts are important as they have led to a decline in the longer-term interest rates (swap rates) that underpin fixed rate mortgage pricing.
“If sustained, this will help to ease the affordability pressures that have been stifling housing market activity in recent quarters, where the number of mortgage approvals for house purchases has been running at c.30% below pre-pandemic levels,” explained Gardner.
But rate-setters at the Bank of England warned this week that interest rates will have to remain higher than markets currently expect, due to the UK’s hot labour market.
Matt Thompson, head of sales at Chestertons, said buyers have been more motivated to pick up their property search in November, especially first-time-buyers who welcomed the news of the Guaranteed Mortgage Scheme being extended until June 2025.
“This, in addition to the previous announcement that interest rates remain at 5.25% for the time being, has led to a boost in buyer confidence in November. Many house hunters also don’t expect property values to fall much further; particularly as prices haven’t decreased to the extent as initially predicted,” Thompson said.
But Alice Haine, personal finance analyst at DIY investment platform Bestinvest, said interest rates of 5.25 per cent are “still sky-high in comparison to two years ago,” just before the BoE first began tightening.
“The real pain is still being felt by existing homeowners emerging from deals with ultra-low rates secured when cheap money was the norm. The effective interest rate – the actual interest paid – on newly drawn mortgages rose 14 basis points in October to 5.25% – a dramatic jump on the 1.59% seen in October 2021,” Haine said.