(Bloomberg) -- UK house prices returned to growth in September, according to one of the country’s top mortgage lenders, indicating the Bank of England’s first interest-rate cut is bringing back buyers into the market.
Nationwide Building Society said its gauge of home prices increased 0.7% in September, following a surprise fall last month. Economists surveyed by Bloomberg had expected growth of 0.2%.
It was the strongest month-on-month showing since February. The average house price rose to £266,094 ($356,200) up 3.2% from a year ago, the fastest annual increase in two years.
“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,” said Robert Gardner, chief economist at Nationwide. “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.”
The upturn in the housing market was confirmed by separate Bank of England figures that showed the number of mortgage approvals climbed almost 4% to 64,858 in August, more than economists were expecting. That was the highest since September 2022, before Liz Truss’s calamitous mini-budget caused turmoil in mortgage markets.
The housing market is strengthening after a patchy recovery in the first half of the year. Rising real incomes, stronger savings and easing mortgage costs are boosting demand, while a more stable economic outlook is bringing more sellers to the market. The average two-year fixed-rate mortgage is now at 5.4%, according to Moneyfacts, down from from almost 6% in the summer. The BOE cut rates from a 16-year high on Aug. 1 and money markets are pricing in another six reductions by the end of 2025.
Strong September figures add to evidence of a housing activity boost in the wake of the BOE’s first rate cut since the pandemic. Rightmove data also revealed asking prices for UK homes rose at double the expected pace in September.
What Bloomberg Economics Says...
“The UK house price recovery is firming up following the Bank of England’s decision to start the easing cycle in August. Going forward, we expect the central bank to cut rates at a gradual pace, but the pace of price increases will be limited due to affordability remaining stretched for many households.”
—Niraj Shah, economist. Read the full REACT on the Terminal.
The UK is also building homes at the fastest pace in almost two years. This brings Prime Minister Keir Starmer closer to meeting his key pledge to build 1.5 million new homes over the next five years.
Nationwide’s release last month showing a surprise fall in house prices was out of step with most other reports pointing to growing optimism in the market. A separate report from the Royal Institution of Chartered Surveyors indicated buyer demand and sales rose in August, while Halifax figures showed house prices getting close to record highs last month.
Nationwide said house prices rose across most UK regions in the third quarter of this year. Northern Ireland was the best performing region with prices up 8.6% year-on-year.
Hybrid working patterns after the pandemic are still impacting housing demand. Detached house prices saw a 26% increase since the first quarter of 2020, compared to just 15% for flats.
“Detached homes have continued to have a slight edge over other property types, most likely due to the ‘race for space’ seen during the pandemic,” Gardner said.
--With assistance from Tom Rees, Philip Aldrick, Joel Rinneby and Joshua Robinson.
(Adds mortgage approvals data, mortgage rates)
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