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UK house price growth slowed more than expected in January as mortgage rates ticked up and affordability remained stretched, mortgage lender Nationwide said.
The average house price rose to £268,213, up 0.1 per cent from the previous month and 4.1 per cent year on year — less than the annual rise of 4.7 per cent recorded in December.
Economists polled by Reuters had expected a monthly rise of 0.3 per cent and an annual rise of 4.3 per cent.
The slower than expected house price growth was “not too surprising given the rise in quoted mortgage rates at the end of last year,” said Alex Kerr, economist at the consultancy Capital Economics.
Separate data from the Bank of England on Thursday showed that mortgage interest rates rose in December, with the average rate for a two-year fixed mortgage with a 60 per cent loan-to-value ratio rising to 4.47 per cent, up from 4.39 per cent in November and 4.21 per cent in October.
The average rate was well below its 6.22 per cent peak in the summer of 2023, but up from 1.1 per cent in mid-2021, meaning mortgage affordability remained stretched.
The BoE is expected to announce a quarter percentage point cut in interest rates to 4.5 per cent on Thursday. Markets are pricing three rate cuts throughout this year.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “With the Bank of England expected to reduce interest rates next week, the outlook for borrowers is looking up.”
Experts say house prices are also being supported by a potential increase in demand ahead of the expiry of a recent stamp duty holiday. From April, first-time buyers, for example, will start paying the levy for properties worth £300,000 or more, instead of £425,000 at present.
Nationwide reported improving housing affordability last year in part thanks to wage growth.
However, a prospective buyer earning the average UK income and buying a typical first-time buyer property with a 20 per cent deposit would still have a monthly mortgage payment equivalent to 36 per cent of their take-home pay — well above the long-run average of 30 per cent.
Furthermore, house prices remain high relative to average earnings, with the first-time buyer house price-to-earnings ratio standing at 5.0 at the end of 2024, still well above the long-run average of 3.9.
Robert Gardner, chief economist at Nationwide, said the market had shown resilience, “despite ongoing affordability pressures”.
“While there has been a modest improvement over the last year, affordability remains stretched by historic standards,” he said.
