UK house prices increased for the sixth consecutive month in February, despite ongoing economic difficulties. According to data from Nationwide, Britain’s largest building society, the average house price rose by 0.4% during the month, up from 0.1% in January. This growth brings the average price of a house purchased through Nationwide to £270,493.
Over the last 12 months, UK house prices have increased by 3.9%, slightly lower than the 4.1% annual rate recorded in January. The rise follows a decline in house prices between mid-2023 and the spring of 2024. Nationwide’s house price index is one of the first indicators of UK housing market trends, preceding reports from Halifax and the Land Registry.
However, despite the sustained growth, annual UK house price increases have not reached the double-digit growth rates seen in 2022, when the market experienced a boom due to the effects of the coronavirus pandemic. Industry analysts suggest that this slower growth is due to higher mortgage rates and broader economic uncertainty, which have made buyers more cautious. Additionally, limited housing supply has contributed to keeping prices from dropping significantly.
What Is Driving Housing Market Resilience?
Robert Gardner, Nationwide’s chief economist, stated: “Housing market activity has remained resilient in recent months, despite ongoing affordability challenges.” He observed a “noticeable pickup in total housing transactions” in the latter half of 2024. However, despite this increase, the number of transactions throughout the year remained 6% lower than in 2019, the last year before the pandemic’s impact.
Economic factors such as employment levels, wage growth, and interest rates all play a crucial role in the housing market’s resilience. Although inflation remains high, stable employment rates have provided some support for buyers who can afford the higher mortgage repayments.
Ashley Webb, an economist at Capital Economics, suggested that some of the UK house prices increase could be attributed to buyers accelerating purchases ahead of an upcoming increase in stamp duty. However, he noted that the housing market appeared to be weathering both the sluggish economy and rising mortgage rates. Webb added that although some regions are experiencing price slowdowns, areas with high demand and limited housing supply continue to see price growth.
How Will the Stamp Duty Changes Affect the Market?
Temporary stamp duty cuts introduced by Liz Truss’s Conservative government are set to end on April 1 in England and Northern Ireland. Scotland and Wales have separate property tax regulations.
From April 1, first-time buyers will need to pay tax on homes valued over £300,000, down from the current threshold of £425,000. Additionally, the reduced-rate threshold for first-time buyers will drop from £625,000 to £500,000. Furthermore, the zero-tax stamp duty threshold for all housing in England will be lowered from £250,000 to £125,000.
Gardner commented on the likely short-term effects of these changes, stating: “The changes to stamp duty at the start of April are likely to generate volatility in transactions in the near term, as buyers bring forward their purchases to avoid the additional tax. This will likely lead to a jump in transactions in March and a corresponding period of weakness in the following months.”
Experts predict that while there may be a temporary surge in activity before the changes take effect, the market may experience a slowdown in the following months as affordability challenges and higher tax burdens deter potential buyers. The extent of the impact will depend on broader economic conditions, including interest rate decisions by the Bank of England.
Is Interest in Buying Homes Still Strong?
Data from Rightmove, the UK’s largest online property website, suggests that public interest in UK house prices remains high. The company reported that users spent a total of 16.4 billion minutes on its platform in 2024, an increase of 6% compared to the previous year.
Rightmove also announced that its annual sales had grown by 7% to £390 million in 2024, although overall profits remained flat. The company’s figures reflect sustained consumer engagement with the housing market, despite broader economic uncertainties.
Analysts suggest that despite economic uncertainty, the long-term trend in UK house prices remains upward due to continued demand and constraints in housing supply. Additionally, interest in suburban and rural areas has persisted following the pandemic-induced shift to remote working, further driving demand in certain regions.
What Does the Future Hold for the Housing Market?
As UK house prices continue to navigate economic fluctuations and tax changes, experts predict short-term volatility, with potential slowdowns in transaction volumes following the anticipated surge in March.
In the medium term, housing affordability will play a significant role in determining market activity. If interest rates remain high, mortgage affordability may continue to constrain buyer demand. On the other hand, if inflation starts to ease and the Bank of England lowers rates, market activity could pick up later in the year.
Moreover, government policies on housing and taxation could influence the market in the coming years. Any potential changes to mortgage lending rules, incentives for first-time buyers, or further tax adjustments could impact buyer behavior.
While short-term market movements may be uncertain, long-term trends suggest that UK house prices are likely to continue growing, albeit at a more moderate pace than during the pandemic-driven boom of 2022. The ability of buyers to adapt to changing economic conditions and regulatory policies will be crucial in shaping the housing market’s future trajectory.
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