House prices bounce back but calls remain for interest rate cut

House prices appear to have benefited from a Spring bounce but sales and mortgage approvals have struggled.

It comes after a busy day for property market data last Friday saw the release of the latest Nationwide House Price Index for May as well as Bank of England mortgage approval figures and HMRC transaction data for April.

Nationwide’s latest House Price Index suggests Index shows average house prices rose by 0.4% in May to £264,249.

It is the first time that average house prices increased on a monthly basis since February 2024.

Average values were also up 1.3% and typical prices are now back to levels seen in November 2022, just after the mini-Budget.

The lender suggested confidence is returning to the property market due to high wage growth and slowing inflation.

Its chief economist Robert Gardner added that the General Election shouldn’t affect the housing market.

Gardner said: “Past general elections do not appear to have generated volatility in house prices or resulted in a significant change in house price trends.

“2019 is a notable exception, but this was due to the impact of the pandemic, with the initial lockdown in 2020 suppressing housing market activity. Activity subsequently bounced back once restrictions began to be lifted.

“It appears that housing market trends have not traditionally been impacted around the time of general elections. Rightly or wrongly, for most homebuyers, elections are not foremost in their minds while buying or selling property.”

Meanwhile, HMRC property data shows the provisional seasonally adjusted estimate of the number of UK residential transactions in April 2024 is 90,430, 10% higher than April 2023 and 5% higher than March 2024.

On a non-seasonally-adjusted basis, sales were up 17% annually but down 9% on a monthly basis.

These figures may reflect activity from earlier this year when mortgage rates were lower.

Mortgage pricing has increased in recent months, putting pressure on buyer budgets, and that seems to be reflected in Bank of England figures.  

The Bank of England recorded 61,140 mortgage approvals for house purchase in April, down marginally from 61,263 in March.

They were still higher than the 48,587 recorded in April 2023.

Commenting on the data, Tom Bill, head of UK residential research at Knight Frank, said: “The fact mortgage approvals were flat in April reflects how stubborn inflation delayed a rate cut while rain deferred the start of the Spring market.

“The number was 7% below the five-year average, excluding 2020. Since then, swap rates have continued to rise thanks to a deteriorating domestic and global inflation outlook, which will keep a lid on prices and activity. 

“Meanwhile, transaction volumes picked up thanks to more listings, particularly in the early weeks of the year when inflation forecasts were more optimistic. Sales were still 12% below their five-year average but should hold up this year despite the July election. We expect average UK prices to rise by 3% in 2024 as a rate cut moves onto the horizon this summer.”

Frances McDonald, director of research at Savills, added: “While completed transactions in April continue to lag more recent housing market indicators, they exceeded 90,000 for the first time since March 2023, having increased for the fourth consecutive month.

“TwentyCi data for May also suggests this momentum is likely to continue. Net agreed sales were 15% up annually and 9% higher than their pre-pandemic average. The same data shows us that there’s also been an improvement in the number of price changes, running at 34% of their 2017-19 average in May having been at least 40% above this level for the past five months.

The mixed picture underlines the need for a rate cut, agents have said.

McDonald added: “Affordability remains the greatest driver in the mainstream housing markets and so the pace and scale of interest rate cuts will continue to have a more significant impact on activity than the timing or outcome of the upcoming general election.”

Propertymark chief executive Nathan Emerson said: “Affordability is still proving to be a massive barrier for many aspiring buyers and sellers.

“With party manifestos being published very soon, we hope to see policies that address and help tackle the country’s ongoing housing crisis.”