House prices rise at fastest pace in two years

House prices are rising at their fastest pace in two years, with would-be buyers having been tempted off the sidelines by the Bank of England’s summer cut in interest rates.
Prices rose by 0.7 per cent in September, figures from Nationwide, the mortgage lender, showed. It means that house prices are, on average, 3.2 per cent higher than they were this time last year.
That is the highest annual rate of price inflation recorded since November 2022, shortly after Liz Truss and Kwasi Kwarteng’s mini-budget caused borrowing costs to spiral and paralysed the housing market.
Economists said the month-on-month rise in September suggested that the 0.2 per cent fall seen in August was just a blip and that house prices are being supported by the recent falls in mortgage rates.
The average price of a house in Britain is now £266,094, Nationwide has calculated, only 2 per cent shy of the record high reached in the summer of 2022, shortly before the mini-budget.
Robert Gardner, Nationwide’s chief economist, said: “Income growth has continued to outstrip house price growth in recent months while borrowing costs have edged lower amid expectations that the Bank of England will continue to lower interest rates in the coming quarters.
“These trends have helped to improve affordability for prospective buyers and underpinned a modest increase in activity and house prices, though both remain subdued by historic standards.”
There remains a north-south divide in the housing market, with prices in the southeast and southwest of England rising much more slowly than in the northwest and Yorkshire. Northern Ireland remains the region where house prices are rising fastest, up more than 8 per cent over the past year.
Prices of detached houses rose rapidly during the post-lockdown “race for space” but they have slowed. Nationwide calculated that on average detached homes have increased in value by 1.7 per cent over the past 12 months, compared with an increase of 2.7 per cent for flats, 2.8 per cent for semi-detached houses, and 3.5 per cent for terraced houses.
The Bank of England cut interest rates to 5 per cent from 5.25 per cent in August. It was the first reduction in more than four years and the central bank is expected to reduce interest rates further.
Mortgage rates have fallen as lenders battle to win over prospective buyers with better deals. At the end of last week, the rate on a five-year fixed-rate mortgage was 5.4 per cent, according to the comparison site Moneyfacts. This compares with 6.5 per cent a year ago.
The rate falls, along with rising consumer confidence and economic growth, have encouraged more buyers to return to the market in recent months.
Alex Kerr, UK economist at Capital Economics, said: “Further declines in swap rates in September suggest there is scope for mortgage rates to fall further and for house price growth to accelerate next year.”
The number of new mortgages approved by lenders has risen to the highest level since the mini-budget in the latest sign that the housing market is recovering after a two-year downturn.
In August, 64,858 mortgages were approved, according to the latest data from the Bank of England. That is a 3.8 increase on July’s total and 43 per cent more than in August 2023, and marks the most in any month since August 2022.
Ashley Webb, a UK economist at Capital Economics, said the figures suggest that house prices would continue to rise. He expects the annual rate of house price inflation to have hit 5 per cent by next spring.