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House price growth back to positive territory in February

Annual house price growth reached 1.2% in February, returning to positive territory for the first time in over a year, Nationwide’s house price index has revealed.

House prices are around 3% below the highs recorded in the summer of 2022 after taking into account seasonal effects.

Robert Gardner, Nationwide’s chief economist, said: “The decline in borrowing costs around the turn of the year appears to have prompted an uptick in the housing market. Indeed, industry data sources point to a noticeable increase in mortgage applications at the start of the year, while surveyors also reported a rise in new buyer enquiries.

“Nevertheless, near-term prospects remain highly uncertain, in part due to ongoing uncertainty about the future path of interest rates. After falling sharply in late December, swap rates, which underpin fixed rate mortgage pricing, have drifted back up (see chart).

“Borrowing costs remain well below the highs recorded last summer but, if the recent upward trend is sustained, it threatens to restrain the pace of any housing market recovery.

“While the squeeze on household budgets is easing, with wage growth now outstripping inflation by a healthy margin, it will take time to make up for the ground lost over the past few years, especially given consumer confidence remains fragile.”

Despite this positivity, mortgage rates are still high, while swap rates – which feed into pricing – have increased in the past month.

Tom Bill, head of UK residential research at Knight Frank, said: “Buyers feel confident that the only way for the base rate is down, which has seen demand and house prices pick up in recent months.

“However, the upwards pressure on mortgage rates in recent weeks shows sellers the importance of getting the asking price right.

“Banks are keen to lend and should eventually lower rates this year as inflation comes under control, which we believe will sustain positive annual growth in 2024 and see UK house prices increase by 3%.”