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UK house prices rise for first time in more than a year as mortgage costs drop

<span>Buyers and sellers continued to return to the property market last month.</span><span>Photograph: Mike Kemp/In Pictures/Getty Images</span>
Buyers and sellers continued to return to the property market last month.Photograph: Mike Kemp/In Pictures/Getty Images

UK house prices increased for the first time on an annual basis in more than a year in February, as a decline in borrowing costs prompted growth in the housing market, according to a survey by Nationwide.

The average price of a home rose to £260,420, up by 0.7% from the month before, and 1.2% higher compared with a year earlier, the research for Britain’s biggest building society found. This is the first annual growth since January 2023, and follows a 0.2% year-on-year drop in January.

House prices are still about 3% below the record highs reached in the summer of 2022.

Related: UK property sales forecast to rise by 10% as buyers and sellers return

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Buyers and sellers continued to return to the property market last month, and are expected to increase the number of home sales by 10% this year, according to the property website Zoopla.

The Nationwide chief economist, Robert Gardner, said: “The decline in borrowing costs around the turn of the year appears to have prompted an uptick in the housing market.”

Mortgage rates have eased since hitting a 15-year high last July, when high inflation led to increased market bets on the Bank of England’s benchmark rate peaking at 6.5%.

The average two-year fixed residential mortgage rate climbed to 6.66%, above the levels reached in the aftermath of the previous autumn’s mini-budget crisis, according to the data provider Moneyfacts. However, the Bank’s base rate has so far peaked at 5.25%, and the average two-year mortgage fix is now at 5.76%.

There are much better deals to be had, below 4%, amid a mortgage price war. Nationwide upped the ante in late January when it cut its five-year fixed mortgage rate for new remortgaging customers to 3.84%.

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Bank of England data out this week showed that new mortgage approvals rose in January to their highest level since October 2022, although new lending was still subdued in historic terms.

Uncertainty about the future path of interest rates remains high, Gardner said. He added that after falling sharply in late December, swap rates, which underpin fixed-rate mortgage pricing, have drifted back up.

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While borrowing costs remain well below the highs recorded last summer, if this recent upward trend is sustained, it threatens to restrain the pace of any housing market recovery, he said.

“While the squeeze on household budgets is easing, with wage growth now outstripping inflation by a healthy margin, it will take time to make up for the ground lost over the past few years, especially given consumer confidence remains fragile,” he added.

The Bank of England last month left interest rates unchanged at 5.25% for a fourth consecutive time. Financial markets forecast two to three quarter-point reductions this year.

Tom Bill, the head of UK residential research at the upmarket estate agent Knight Frank, said: “Buyers feel confident that the only way for the base rate is down, which has seen demand and house prices pick up in recent months. However, the upwards pressure on mortgage rates in recent weeks shows sellers the importance of getting the asking price right.

“Banks are keen to lend and should eventually lower rates this year as inflation comes under control, which we believe will sustain positive annual growth in 2024 and see UK house prices increase by 3%.”

Jeremy Leaf, a north London estate agent and a former Royal Institution of Chartered Surveyors residential chair, warned against focusing too much on property prices when assessing how the housing market is performing.

“In our offices, more valuations, listings and viewings combined with fewer fall-throughs than this time last year are feeding through to agreed sales, mortgage approvals and exchanges,” he said.