Mortgage momentum hikes house prices for first time in over a year

Sarah Coles, head of personal finance at Hargreaves Lansdown, comments on the publication of the Nationwide House Price Index for February 2024, which shows the mortgage momentum hiking house prices for first time in over a year.

Key points from publication:

• • In February, house prices were up 0.7% in a month, and 1.2% in a year. It’s the first annual rise in a year.
  • The average house price is £260,420.
  • House prices are now around 3% lower than the all-time highs in summer 2022.

Sarah Coles says:

“The momentum of moderating mortgages fuelled a first-class February, and hiked house prices, pushing them into positive territory for the first time in over a year.

“For months at the end of 2023, buyers were sitting on their hands, waiting for a break in the clouds.

“Now they’ve snapped up cheaper deals and are hunting for a new home.

“We know from yesterday’s Bank of England data that mortgage approvals surged in December, and we’re seeing this filter though into more demand and higher prices.

“However, there are flies in the soothing balm of a positive property market.

“The momentum of lower mortgage rates in January can only carry us so far.

“Stubborn inflation in 2024 meant during February the mortgage market had a bit of a re-think.

“The banks realised that they were getting ahead of themselves expecting imminent rapid-fire cuts, so they scaled back their expectations.

“As a result, mortgage rates stopped dropping, and have been rising again.

“At the start of February, according to Moneyfacts, the average 2-year rate was 5.56%, and by the end of the month it was 5.75%.

“This isn’t a dramatic movement, but the direction of travel is important. If rates keep drifting up, we could see buyers hit pause.

“As average house prices rise back over £260,000 it raises another problem, because higher house prices, coupled with rising mortgage rates, risk pushing property out of reach for buyers again.

“Already at the end of 2023, the average ratio of house prices to earnings was 5.2 – compared to the long run average of 3.9, and if pay rises don’t keep pace with price rises this could get worse.

“In this environment, the size of your property deposit is key.

“If you’re saving for a new home, and news of rising prices makes it feel even more remote, it’s worth considering the Lifetime ISA if you qualify.

“You can save up to £4,000 a year and the government will bump it up by 25% – or as much as £1,000.

“It’s a welcome leg up in a market where rising prices means you need all the help you can get.”

Kindly shared by Hargreaves Lansdown