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UK house prices outpaced forecasts in February as the property market showed “resilience” in the face of affordability pressures and buyers tried to get ahead of stamp duty changes taking effect in April, said lender Nationwide.
House prices rose 0.4 per cent between January and February, taking the average cost to £270,493. The typical house price was 3.9 per cent higher than in February last year, an annual growth rate that was slightly down from 4.1 per cent in January.
Economists polled by Reuters had expected a 0.2 per cent month-on-month rise and a 3.4 per cent annual increase.
“The looming April end to stamp duty threshold relief likely led some buyers to bring forward house purchases, boosting activity and house price inflation in early 2025,” said Elliott Jordan-Doak, economist at Pantheon Macroeconomics. “So the market will likely soften somewhat after April.”
But with real wages continuing to rise and unemployment staying low, “we remain comfortable with our call for house prices to rise by 4 per cent year over year in 2025”, he added.
There was a noticeable pick-up in total housing transactions in the second half of 2024, said Robert Gardner, Nationwide’s chief economist, up 14 per cent compared with the same period in 2023.
“Housing market activity has also remained resilient in recent months, despite ongoing affordability challenges,” he said.
Gardner added that he expected changes to stamp duty at the start of April to “likely generate volatility” in transactions in the near term, as buyers bring forward their purchases to avoid the additional tax.
From April first-time buyers, for example, will start paying the levy for properties worth £300,000 or more, instead of £425,000 at present.
Real wages rose at the fastest pace since 2021 in the last three months of 2024, while mortgage rates have fluctuated over the past year as markets reassess how much the Bank of England will cut interest rates.
Borrowing costs are still well below the peak reached in summer 2023.
The BoE has cut borrowing costs three times since the summer of last year and its benchmark rate now sits at 4.5 per cent. Financial markets expect two more quarter-point rate cuts by the end of this year.
“As interest rates fell through last summer and into the autumn, the housing market kicked into gear, but mortgage rates have risen over the last three months as financial markets now expect fewer interest rate cuts than they did in late summer,” said Matt Swannell, economist at consultancy EY ITEM Club.
“Nonetheless, housing demand has held up over the last few months as buyers have prioritised completing before the stamp duty thresholds fall back to normal levels at the end of March,” he added.
Nationwide data showed UK house prices were just 1.2 per cent below their peak in summer 2023, when they were hit by historically high mortgage rates and falling household income.
The resilience in house prices is in contrast with subdued growth, with the economy failing to expand in the three months to September 2024 and rising only 0.1 per cent in the final quarter of last year.
Corporate sentiment took a hit after chancellor Rachel Reeves used her autumn Budget to set out more than £40bn of tax rises, most of which will fall on businesses from April. Consumer sentiment was also affected, prompting households to prioritise saving over spending.
House prices began to rise again last year as mortgage rates fell and wages grew faster than inflation. The average house price is now 25 per cent higher than in January 2020, before the pandemic.
