Housing market likely to ‘strengthen gradually’, says Nationwide

Housing market activity is predicted to “strengthen gradually” in the coming quarters, according to Nationwide’s chief economist.

The bank this morning published its latest house price index, which showed the annual rate of house price growth had increased modestly in July to 2.4%, from 2.1% in June.

Month-on-month, house prices were up 0.6%, with the average price now standing at £272,664.

“Looking through the volatility generated by the end of the stamp duty holiday, activity appears to be holding up well,” said Robert Gardner, Nationwide’s chief economist, noting that 64,200 mortgages for house purchase were approved in June, which was broadly in line with the pre-pandemic average despite the changed interest rate environment.

“After deteriorating markedly in the wake of the pandemic, housing affordability has been steadily improving, thanks to a period of strong income growth alongside more subdued house price growth and a modest fallback in mortgage rates,” he added.

The price of a typical UK home remains around 5.75 times average income, but this ratio is significantly below the all time high of 6.9 recorded in 2022 and the lowest it has been for more than a decade.

“This is helping to ease deposit constraints for potential buyers, as has an improvement in the availability of higher loan to value mortgages,” he said.

Gardner also pointed to interest rates on a typical five-year fixed-rate mortgage, which stand at 4.3% for a borrower with a 25% deposit. While three times higher than the all time lows of autumn 2021, this marks a major drop from the highs of around 5.7% in late 2023.

“Despite wider economic uncertainties in the global economy, underlying conditions for potential home buyers in the UK remain supportive,” he said.

“Unemployment remains low, earnings are still rising at a healthy pace (even after accounting for inflation), household balance sheets are strong and borrowing costs are likely to moderate a little further if Bank Rate is lowered further in the coming quarters as we, and most other analysts, expect.

“Providing the broader economic recovery is maintained, housing market activity is likely to continue to strengthen gradually in the quarters ahead.”