Property rises could just be momentum – or it could be better news

Sarah Coles, head of personal finance at Hargreaves Lansdown, comments on the publication of the Halifax House Price Index for February 2024, showing property rises could just be momentum or it could be better news.

Key points from publication:

• • House prices rose 0.4% in February – the fifth consecutive monthly increase. They’re up 1.7% in a year – down from 2.3% a month earlier.
  • The average house now costs £291,699 –£1,000 more than last month.
  • It’s only £1,800 off the peak in June 2022.
  • Northern Ireland saw the strongest growth – up 5% in a year. London prices finally returned to annual growth – up 1.5% in a year

Sarah Coles says:

“The power of momentum has helped keep house prices rising into February.

“It’s a slower rise than January, as mortgage rate cuts eased, and there’s every chance this could peter out in the face of higher rates.

“However, after five months of house price growth, optimism is building that this could be the new normal.

“January’s pick up wasn’t just the enthusiasm of the new year, mortgage rates played a huge role too.

“The average 2-year rate dropped from 5.93% on the 2 January to 5.56% at the end of the month, according to Moneyfacts.

“However, February brought market concerns that the Bank of England wouldn’t cut rates as fast as it hoped, so banks factored in higher rates for longer, and by the end of the month, this meant the average 2-year mortgage rate rose to 5.75%

“Mortgage changes have a lag effect on demand, because those approved in January will tend to fund the sales in February, and to a certain extent in March, but their impact will diminish over time.

“This may be what we’re seeing in the figures.

“However, there is still plenty of optimism in the market. Prices are getting close to the peak in 2022, and we’ve racked up consecutive five months of rises now.

“With more buyer demand showing up in the RICS residential market report in January, sellers will be hoping that more residual demand is here to stay. 

“An awful lot will depend on the wider economy.

“There’s still a good chance there are more difficult economic times on the horizon, and the Bank of England is fairly gloomy about the outlook.

“However, we may well be out of a recession, and as the second National Insurance cut of the year filters through into people’s pockets, it could fuel a bit more spending, and consumer optimism.

“Sentiment plays such a vital role in this market that it could help keep us in positive territory in the coming months – even with higher mortgage rates.

“All this is good news for sellers, but less positive for first time buyers.

“There was no joy for them in yesterday’s Budget, and in a rising market, the pressure will be on to build as big a deposit as fast as possible.

“If you have at least a year until you plan to buy, and you’re aged 18-39, you can consider a Lifetime ISA, so the first £4,000 a year you put towards your deposit will be boosted by a £1,000 bonus from the government.

“There’s still an awful lot to save, but it’s a great step in the right direction.”

Kindly shared by Hargreaves Lansdown