House prices experienced their fastest annual growth in two years this November, according to the latest survey from Nationwide.
The lender reported that the price of a typical UK home rose by 3.7% compared to the same month last year, bringing property values close to a record high. This surge in house prices has taken many by surprise, particularly given the ongoing challenges surrounding affordability, which remains stretched by historic standards.
Despite the rising prices, housing experts have indicated that the market is likely to see an increase in the number of property sales over the next few months. This is partly due to the anticipation of changes to stamp duty, set to take effect in April. Many prospective buyers are expected to act quickly in order to take advantage of the current tax rates before the new rules are implemented.
The combination of these factors—rising house prices, the approach of the stamp duty changes, and the ongoing demand for homes—suggests that the property market may experience a surge in activity in the short term. However, experts remain cautious about what the longer-term impact might be, especially with the current affordability pressures faced by buyers.
House prices saw a rise of 1.2% between October and November, according to the latest figures from Nationwide. This marks the largest month-on-month increase since March 2022.
The average price of a property now stands at £268,144, edging closer to the record high of £273,751, which was reached in August 2022. This suggests that despite various challenges in the housing market, property values are still holding strong.
Nationwide highlighted that the housing market has shown “relative resilience” in recent months, with mortgage approvals remaining at levels close to those seen before the pandemic. According to Bank of England data released last week, mortgage approvals in October reached their highest level since August 2022, further indicating the continued demand for housing despite broader economic pressures.
Nationwide’s chief economist, Robert Gardner, highlighted that a combination of factors has contributed to the resilience of the housing market. He explained that the low levels of unemployment, coupled with pay increases that have been outpacing inflation, have played a crucial role in “underpinning” the housing market’s stability. This positive economic backdrop has given potential buyers more confidence, despite ongoing concerns about the broader economy. Gardner’s comments come at a time when the housing market, while still facing affordability challenges, remains relatively robust compared to previous downturns.
In October’s Budget, Chancellor Rachel Reeves made an announcement that could have significant implications for the housing market. She confirmed that the reduced stamp duty rates in England and Northern Ireland would come to an end in April next year. This move sparked a great deal of speculation among housing market analysts, with some suggesting that the anticipated end to the stamp duty holiday was behind the noticeable surge in house prices seen in November. While many experts were quick to connect the two, Mr Gardner remained cautious in attributing the rise solely to the stamp duty change. He explained that it was “unlikely” the Budget announcement had played a direct role in the price spike, noting that the majority of mortgage applications had been initiated before the Chancellor’s speech, meaning the price jump was more likely driven by other market forces rather than immediate reactions to the announcement.
The debate continues as to what will drive house prices in the months to come, especially with the deadline for stamp duty changes approaching. However, it remains clear that the broader economic factors, including wage growth and employment levels, are key factors in maintaining stability in the housing market for now.
The upcoming changes to stamp duty are set to have a significant impact on the housing market. Starting in April, house buyers will be required to pay stamp duty on properties valued above £125,000, a notable reduction from the current threshold of £250,000. This change will affect many buyers, particularly those in the mid-range of the housing market.
For first-time buyers, the situation is also set to shift. Currently, they benefit from an exemption on stamp duty for properties worth up to £425,000. However, this limit will be lowered to £300,000 in April. This reduction could have a considerable effect on first-time buyers, potentially reducing their purchasing power in a competitive market.
Nationwide has forecast that the housing market will experience a surge in sales during the first three months of 2025, as potential buyers rush to complete transactions before the stamp duty changes take effect. However, following this initial increase in activity, a slowdown is expected in the months after the April deadline. This shift could lead to a temporary lull in the market as buyers adjust to the new rules and reassess their property purchasing decisions.
Mr Gardner expressed an optimistic outlook for the housing market, predicting that it would gradually strengthen in the coming months. He attributed this expected growth to the boost in consumers’ spending power, driven by lower interest rates and higher wages. This combination, he believes, will help to sustain the housing market and encourage further stability.
However, Sarah Coles, head of personal finance at Hargreaves Lansdown, offered a more cautious perspective. She pointed out that although house prices are near record highs, mortgage rates remain “relatively high.” This, she noted, could lead to renewed concerns about affordability, with a growing risk that it may become a barrier for many potential buyers. As a result, she suggested that affordability could once again emerge as a significant challenge in the housing market.
Mortgage rates
Mortgage rates began to decrease over the summer after the Bank of England started cutting its key interest rate. This brought some relief to potential homeowners and those seeking to refinance. However, in recent weeks, mortgage rates have begun to climb again. This rise in rates is due to expectations that the Bank of England may not lower interest rates as quickly as previously anticipated.
In addition to this, millions of homeowners are facing potential increases in their mortgage repayments over the next few years. This is because many will see their current fixed-rate deals come to an end. According to the Bank of England, around 4.4 million mortgage holders are expected to experience higher payments by 2027. For those coming off a fixed rate in the next two years, the Bank predicts a typical homeowner will face an average increase of £146 in their monthly repayments.
Financial information provider Moneyfacts reports that the average two-year fixed mortgage rate currently stands at 5.52%, while the average five-year fixed rate is slightly lower at 5.28%. To manage the affordability of mortgages, many homebuyers are opting for longer mortgage terms, choosing ultra-long or extended mortgages. This trend has gained popularity as buyers look to spread the cost of purchasing a home over a longer period.
In the last three years alone, more than a million mortgages have been issued with repayment terms that will extend into pension age. While these longer terms can lower monthly repayments, they also increase the total cost of the loan over time. Experts warn that this can have an impact on long-term financial planning, particularly for retirement, as the extended loan terms could affect the borrower’s ability to save adequately for their future.
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