In a surprising turn of events, UK house prices recorded their fastest annual growth in two years this November. Nationwide reported a 3.7% year-on-year increase, with the average home now costing £268,144, just shy of the all-time high set in August 2022. This robust performance defies expectations, especially given persistent affordability challenges and elevated mortgage rates.
Market Resilience Amid Challenges
Several factors underpin this unexpected growth. Nationwide’s Chief Economist, Robert Gardner, highlights a strong labour market where low unemployment and real wage increases have bolstered consumer spending power. Mortgage approvals have also rebounded, reaching near pre-pandemic levels. Bank of England data from October shows the highest monthly approval rate since August 2022, further affirming the market’s resilience.
However, this buoyancy may not be sustainable. Mortgage rates, while easing from their summer peaks, remain significantly above historical norms. The average two-year fixed rate stands at 5.52%, and millions of households are set to face higher repayments as their fixed-rate deals expire. By 2027, an estimated 4.4 million mortgage holders will see payment increases, with some households experiencing monthly hikes of up to £500.
- Average UK property price (November 2024): £268,144
- Current average two-year fixed mortgage rate: 5.52%
Impact of Stamp Duty Changes
Looking ahead, the market will likely see a short-term spike in activity as buyers rush to beat the April 2025 deadline for stamp duty changes. The Chancellor’s Budget will lower the nil-rate threshold from £250,000 to £125,000, increasing tax liabilities for many. First-time buyers will also face reduced exemptions, with the nil-rate threshold dropping from £425,000 to £300,000.
Analysts predict this policy shift will drive up both sales volumes and prices in the first quarter of 2025. Property platform Zoopla forecasts a 10% increase in home sales next year, reaching an estimated 1.1 million transactions. However, post-April, activity is expected to slow as the market adjusts to the new tax regime.
Longer Mortgage Terms Gain Popularity
Affordability concerns are also reshaping borrowing behaviours. Extended mortgage terms, often stretching into retirement years, have become increasingly popular. Over one million such mortgages have been issued in the last three years. While these ultra-long loans reduce monthly payments, they lead to higher overall costs and complicate financial planning for retirement.
The UK housing market’s remarkable growth reflects its resilience amid economic uncertainty. However, the interplay of rising mortgage costs, affordability pressures, and stamp duty changes creates a challenging environment. For stakeholders, the focus will need to be on balancing immediate opportunities with the potential long-term impacts of these developments.
(Source: BBC, Zoopla, Invezz)