Figures from Nationwide show house prices rose by an unexpected 3.5% last month.
According to experts, low unemployment, strong wage growth and easing mortgage rates are some of the reasons why house prices grew last month. While the news has been welcomed, it still came as a shock.
The data, which was published by Nationwide this morning, shows the average cost of a property increased by 0.6% between April and May. What’s more, prices rose at an annual rate of 3.5%, up from 3.4% the previous month.
Formerly, economists theorised in the Reuters poll that house prices would see an annual increase of 2.9%.
Robert Gardner, chief economist at Nationwide, has said the news has cast a well-needed positive light on the housing market and that ‘underlying conditions for potential home buyers in the UK remain supportive’.
‘Unemployment remains low, earnings are rising at a healthy pace, household balance sheets are strong and borrowing costs are likely to moderate a little if the bank rate is lowered further in the coming quarters as we, and most other analysts,’ expect,’ he continued.
However, wherever there is good news, bad news often follows. The research also outlined that the rate on the outstanding stock of mortgages increased from 3.84% to 3.86%, suggesting the high-interest rate increases are still taking their toll on households.
‘Despite a rise, we believe that growth is likely to face pressure and remain steady, as higher borrowing costs start to affect buyers, despite the market’s continued resilience,’ Daniel Austin, CEO and co-founder of ASK Partners, said. ‘Investors and developers in the residential sector remain motivated by the supply demand imbalance and under the Labour government, we think there will be more projects that get off the ground.
‘We are seeing a greater variety of housing options, such as co-living schemes, coming to market which fulfil the growing requirements of younger professional buyers. If prices flatten and interest rates start to fall, we will see more first-time buyers able to step onto the property ladder.’
Tom Brown, managing director of real estate at Ingenious, added: ‘Today’s data shows that the resilience and appeal of the UK property sector persist. Though we have seen higher inflation and sticky borrowing rates, we welcome the Bank of England (BoE) recent rate cut and what will hopefully be the start of the much needed falling rate cycle.’
Last month the BoE cut interest rates by a quarter point for the fourth time since the middle of 2024, taking them to 4.25% – their lowest level since 2023.
Tom continued: ‘There’s clearly a significant and notable shortage of housing inventory across various price brackets and locations. Consequently, any decline in homeowner sales is likely counterbalanced by increased demand from renters and investors. This is a trend that is not going away. However, it’s crucial to recognise that the situation isn’t consistent nationwide or across different property pricing brackets.
‘It’s helpful to delve into subsectors and regional dynamics when assessing opportunities, as a broad market view can be misleading. In the real estate sector, we’re seeing significant investment capital for assets for long-term rental. On account of their scale and buying power, these typically institutional investors face fewer disruptions than owner occupiers or small-scale Buy-to-let investors.’
Photo by Tierra Mallorca via UnSplash
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