Nationwide: House prices rose in January but ‘rapid rebound’ is unlikely

Average house prices rose between December and January but a rapid rebound is unlikely, Nationwide has warned.

The latest Nationwide House Price Index for January shows average prices rose 0.7% on a monthly basis to £257,656.

The figure is down 0.2% annually, which is an improvement on the 1.8% decline recorded in December.

Robert Gardner, Nationwide's chief economist, attributed the improvement to falling mortgage rates and rising expectations of interest rate cuts.

He added: “While a rapid rebound in activity or house prices in 2024 appears unlikely, the outlook is looking a little more positive. The most recent RICS survey suggests the decline in new buyer enquiries has halted, while there are tentative signs of a pickup in the number of properties coming onto the market.

“How mortgage rates evolve will be crucial, as affordability pressures were the key factor holding back housing market activity in 2023. Indeed, at the end of 2023, a borrower earning the average UK income and buying a typical first-time buyer property with a 20% deposit had a monthly mortgage payment equivalent to 38% of take-home pay – well above the long run average of 30%.

"If average mortgage rates were to trend down to 4%, this would ease the mortgage payments burden to 34% of take-home pay (assuming house prices and earnings are unchanged).

However, other things equal, mortgage rates of 3%, still well above the lows seen in the wake of the pandemic, would be needed to bring this measure of affordability back towards its long run average.”

Gardner said the deposit burden remains significant for buyers, with big regional differences and people relying on family help or an inheritance to get on the property ladder.

He said: “There remains considerable variation in affordability across the country, with pressures particularly acute in London, the south of England and East Anglia. Scotland and the North continue to be the most affordable regions, with mortgage payments as a share of take-home pay much closer to their long run average.”

Commenting on the index, Matt Thompson, head of sales at Chestertons, said: “The gradual introduction of more attractive mortgage products boosted buyer confidence in January, resulting in more buyers entering the market. This increase in activity was further driven by pent-up demand from house hunters who were unable to find a property last year and are motivated to finalise their search. Sellers also feel more confident about attracting the right buyer for their home which led to a slight increase in the number of properties being put up for sale in January.”

Nicky Stevenson, managing director at Fine & Country, added: “The housing market has started the year strongly, and increasing buyer demand has pushed average prices up in the first month of the year.

“The housing market has been resilient during a turbulent period for the economy, and although the recent rise in inflation is a reminder that there could be more bumps ahead, there are many reasons to be positive. 

“Mortgage approvals continue to rise month on month, as buyers return to the market at a steady rate. Many of them have been enticed to begin or resume their property search as a result of falling interest rates. 

“Yet the Bank of England has a big decision on its hands when it decides what will happen with the base rate.  
“Another pause in rate hikes, or even a fall, will keep encouraging buyers to the market, but a move in the opposite direction could put a bit of a damper on activity in the early part of 2024.”