House prices and mortgage approvals hit new highs - has the market recovered?

Average house prices and mortgage approvals hit new highs during the summer months, in a positive sign for the property market.

Nationwide data shows average UK house prices rose at their highest annual rate since December 2022 during August.

The latest Nationwide House Price Index shows prices rose 2.4% on average to £265,375 last month.

This compares with a growth rate of 2.1% in July but is down 0.2% on a monthly basis.

Robert Gardner, chief economist for Nationwide, said: “While house price growth and activity remain subdued by historic standards, they  nevertheless present a picture of resilience in the context of the higher interest rate environment and where house prices remain  high relative to average earnings. which makes raising a depositmore challenging.

“Providing the economy continues to recover steadily, as we expect, housing market activity is likely to strengthen gradually as affordability constraints ease through a combination of modestly lower interest rates and earnings outpacing house price growth.”

Analysis by the lender highlighted that buyers are paying a premium for more energy efficient homes.

Gardner added: “Our analysis suggests that a more energy efficient property, rated A or B, attracts a modest premium of 2.8% compared to a similar property rated D, the most commonly occurring rating. 

“There is a noticeable discount for properties rated F or G - the lowest energy efficiency ratings. Indeed, an F or G rated home is valued 4.2% lower than a similar D rated property.

“Our research suggests while energy efficiency impacts remain relatively modest, they have increased relative to pre-pandemic levels.”

Commenting on the index,  Tom Bill, head of UK residential research at Knight Frank, said: “The UK housing market is in a better place than it was last summer as inflation comes under control and lenders trim their rates. 

“Financial markets are pricing in another cut this year and as mortgage rates fall this autumn, it should underpin transactions and modest single-digit price growth, which doesn’t necessarily chime with recent government warnings about the state of the economy.”

Iain McKenzie, chief executive of The Guild of Property Professionals, added: “We are seeing house prices rising at the fastest pace since the closing months of the pandemic when there was a rush to buy properties as people adjusted to remote and hybrid work patterns. 

“The Bank of England believes that inflationary pressures have eased enough to start cutting borrowing costs, which in turn will enable more buyers to get a mortgage in principle. This could push sellers to be less flexible on the asking price if there is a significant boost of hopeful buyers in their area.

“While headline inflation figures are looking brighter than last year, many first-time buyers are still not out of the woods yet when it comes to the challenging living costs.”

McKenzie agreed that there is a growing emphasis on energy-efficient homes, adding: “This is particularly important right now as energy prices are set to rise again this winter. Properties that benefit from these benefits will be in high demand. 

“Overall, the modest growth we are seeing will be a benefit to homeowners, while ensuring that buyers are not priced out of the market. We are forecasting that the year will continue to play out this way.”

Meanwhile, Bank of England data shows mortgage approvals for July were at the highest level since September 2022 at 61,985.

Nathan Emerson, chief executive of Propertymark, said:  “It is extremely positive that consumers are continuing to approach the housing market with confidence and that current interest rates have not deterred people from making their next housing move.

"It’s important to stress that wider economic conditions are still on the pathway to full recovery, but we are certainly witnessing greater confidence when compared to twelve months ago. When conditions permit, it would be welcome news to see the Bank of England further lower interest rates, but it has to be appreciated that this must happen in a controlled manner so as not to undo the progress we have seen."