"Providing the broader economic recovery is maintained, housing market activity is likely to continue to strengthen gradually in the quarters ahead"
- Robert Gardner - Nationwide
Annual house price growth increased marginally to 2.4% in July, up from 2.1% the previous month, according to Nationwide’s latest house price index. On a monthly basis, prices rose by 0.6%, although this marked a slowdown from June’s 0.9% increase.
The average price of a typical UK home in July stood at £272,664, slightly higher than the £271,619 recorded in June. While month-to-month movements remain mixed, July’s data suggests modest momentum in the housing market.
“July saw a modest pick-up in the rate of annual house price growth to 2.4%, from 2.1% in June,” said Robert Gardner, Nationwide’s chief economist. “Prices increased by 0.6% month on month, after taking account of seasonal effects.”
Gardner added that housing activity, while still subject to some volatility following the end of the stamp duty holiday, is holding up well. “Indeed, 64,200 mortgages for house purchase were approved in June, broadly in line with the pre-pandemic average, despite the changed interest rate environment,” he said.
Affordability metrics have improved, Gardner noted, driven by stronger income growth and more moderate price rises. “After deteriorating markedly in the wake of the pandemic, housing affordability has been steadily improving, thanks to a period of strong income growth alongside more subdued house price growth and a modest fallback in mortgage rates,” he explained.
He continued, “While the price of a typical UK home is around 5.75 times average income, this ratio is well below the all-time high of 6.9 recorded in 2022 and is currently the lowest this ratio has been for over a decade. This is helping to ease deposit constraints for potential buyers, as there has been an improvement in the availability of higher loan-to-value mortgages.”
Gardner also highlighted shifts in the cost of borrowing: “Similarly, the interest rate on a typical five-year fixed-rate mortgage is around 4.3% (for a borrower with a 25% deposit). This is still over three times the all-time lows prevailing in autumn 2021, but well below the highs of c5.7% reached in late 2023.”
Despite ongoing economic concerns globally, Gardner suggested domestic conditions remain supportive. “Unemployment remains low, earnings are still rising at a healthy pace (even after accounting for inflation), household balance sheets are strong and borrowing costs are likely to moderate a little further if Bank Rate is lowered further in the coming quarters as we, and most other analysts, expect,” he said. “Providing the broader economic recovery is maintained, housing market activity is likely to continue to strengthen gradually in the quarters ahead.”
Market reaction
Industry figures expressed cautious optimism following the release.
“The monthly rate of house price growth has been unpredictable of late, however, July saw the decline of the previous month reversed and we continue to see a consistently strong performance where the annual rate of growth is concerned – which is a far better indicator of the health of the market,” said Marc von Grundherr, director of Benham and Reeves. “This overarching air of positivity has been driven by buyers returning with confidence, and since March of last year, we’ve seen mortgage approvals remain above the 60,000 threshold."
"With this figure having also increased over the last two months, we can expect continued stability in house prices for the remainder of the year, as more buyers look to make their move.”
Verona Frankish, CEO of Yopa, commented, “July was a wholly positive month for the market, with house prices seeing positive movement both on a monthly and annual basis. Recent improvements in mortgage market affordability, including the move to increase income lending multiples and the decision to launch a permanent Mortgage Guarantee Scheme, should help ensure that buyer activity remains consistent and house prices continue to strengthen.”
She added, “However, it’s important to remember that the homebuying process remains challenging for many, and while market sentiment is positive, sellers must remain realistic when pricing for current market conditions if they wish to secure a sale.”
“The housing market is getting back on its feet after a slowdown in the second quarter of the year due to the stamp duty cliff edge in April and a general mood of economic uncertainty," notes Tom Bill, head of UK residential research at Knight Frank.
He added, "Mortgage rates are at similar levels to last October before the Budget, which has supported demand, although sticky inflation means a probable cut by the Bank of England next week may only be followed by one more this year. Despite a modest uptick in July, high levels of supply are keeping a lid on prices which means it is still very much a buyers’ market.”
Nathan Emerson, CEO at Propertymark, said, “This shows that the UK’s housing market remains stable at a time when numerous domestic and international factors are impacting the wider economy."
"With continued talk of a gradual easing of interest rates, even while inflation remains above the Bank of England’s targeted rate of 2%, it is vital that this results in more affordable mortgage products for aspiring buyers and home movers. Many people are delaying paying off their mortgages until later in life via 35-year or 40-year mortgages. Therefore, a reduction in interest rates would be very welcome to help offset ongoing financial pressures and worries over the cost of living for many.”
Matt Thompson, head of sales at Chestertons, observed increased market activity: “We have been seeing house hunters pausing their search amid the economic climate and level of interest rates, but many feel that the property market now provides a window of opportunity as more properties are up for sale."
"Last month alone, some of our branches have seen an evident uplift in the number of vendors wanting to sell, which has motivated more buyers to resume their search and make an offer. With the Bank of England likely to lower interest rates next week, we expect more buyers to proceed with their property search over the coming weeks.”
Iain McKenzie, ceo of The Guild of Property Professionals, noted: “Today's Nationwide figures, showing a firming of annual house price growth to 2.4%, are another clear signal that the property market has found its footing and is building positive momentum. The steady 0.6% month-on-month increase is exactly the kind of sustainable, confident growth we have been anticipating.”
He added, “This isn't a market running hot, but one that is responding logically to improved conditions. The driving force behind this stability is growing borrower confidence, which is being fuelled by an increasingly favourable mortgage environment. Mortgage approvals are rising, and transaction volumes are climbing steadily month-on-month and year-on-year.”
According to McKenzie, “All eyes are now on the Bank of England. While the Bank is rightly walking a tightrope between managing inflation and stimulating the economy, the widespread expectation of at least one rate cut before the end of the year is providing a psychological boost to the market.”
He continued, “However, this is a balanced market, not a runaway one. Buyers remain discerning and price-sensitive, and the significant increase in the number of properties for sale is giving them more choice and negotiating power. This increased supply is acting as a natural handbrake, ensuring that price growth remains modest and grounded in reality, which is fundamentally healthy for the long-term.”
McKenzie concluded: “For sellers, realistic pricing is crucial to capture buyers’ attention in a more competitive landscape. For buyers, the combination of more choice and the likelihood of further mortgage rate improvements creates a compelling window of opportunity. Acting now could mean securing a favourable deal before the competition heats up further. Overall, this data paints a picture of a resilient market. We’ve moved beyond recovery and into a phase of considered, confident activity that we expect to carry through the second half of the year.”
