House price growth slows to just 1.1%, according to Nationwide, as interest rate hikes affect mortgage affordability amid uncertain economy
- The average house now costs £258,297, up from £262,068 in December
- Month-on-month prices fell 0.6% and are 3.2% lower than August
Annual growth in UK house prices slowed to 1.1% in January from 2.8% in December as tough economic conditions and rising interest rates continued to weigh on the market.
The average house now costs £258,297, up 12.4% over two years, according to Nationwide’s latest house price index.
However, month on month, prices have fallen 0.6% from £262,068 in December and are now 3.2% below their August peak.
The average house now costs £258,297, up from £262,068 in December 2022
Robert Gardner, Nationwide’s chief economist, said: “However, there are encouraging signs that mortgage rates are normalizing, but it is too early to tell whether activity in the housing market has started to pick up.”
“The decline in December home purchase approvals reported by the Bank of England largely reflects the sharp drop in mortgage applications following the mini-budget.”
A total of 35,600 mortgages were approved in December, the lowest level since May 2020.
The average interest rate paid on new mortgages in December also rose by 0.32%, to 3.67%, marking the biggest monthly jump since December 2021, when the Bank of England began raising its base rate.
The typical two-year fixed-rate mortgage fell from a high of 6.65% in October to 5.45% on January 31, according to Moneyfacts.
Five-year corrections followed a similar trajectory, falling from a high of 6.51% in October to 5.2% today.
And, in more good news for borrowers, lenders have begun to engage in what brokers call a “price war”.
Major lenders including Halifax, Santander and Barclays have all cut their fixed mortgage rates in the past two weeks.
House price growth has started to stagnate, with prices rising just 1.1% in the year to January 2023
However, Nationwide’s Gardner warned that the rate hike has hit affordability as potential buyers weigh whether they can afford the cost of servicing a mortgage at current rates.
He said: “If recent mortgage rate cuts continue, this should help improve the affordability position for potential home buyers, albeit modestly, as should solid rates of income growth (wage growth is currently dwindling). 7% in the private sector), especially if combined with weak or negative house price growth.
Gardner also warned of tough economic times ahead.
He adds: “It will be difficult for the market to regain much momentum in the near term, as economic headwinds are expected to remain strong, with real incomes likely to fall further and the labor market expected to largely weaken as the economy is shrinking.”
