House prices rise at fastest pace in two years

Annual house prices rose at the fastest pace for two years in September as buyers were encouraged by the Bank of England’s summer cut in interest rates.
Prices increased by 0.7 per cent month-on-month, with the annual rate rising to 3.2 per cent, figures from the mortgage lender Nationwide showed.
Economists said the month-on-month rise suggested that August’s 0.2 per cent month-on-month fall was just a blip and that house prices were being supported by the recent falls in mortgage rates.
Average prices are now £266,094, around 2 per cent below the all-time highs recorded in summer 2022 before the mini-budget unsettled the market.
Robert Gardner, Nationwide’s chief economist, said: “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 in the coming quarters.
“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 Bank of England cut interest rates to 5 per cent from 5.25 per cent in August. It was the first reduction in more than four years and the central bank is expected to reduce interest rates further.
Mortgage rates have fallen as lenders battle to win over prospective buyers with better deals. At the end of last week the rate on a five-year fixed-rate mortgage was 5.4 per cent, according to the comparison site Moneyfacts. This compares with 6.5 per cent a year ago.
House prices fell sharply after Kwasi Kwarteng and Liz Truss’s mini-budget in September 2022 spooked financial markets, sent borrowing costs up and triggered an almost immediate downturn.
The market began to recover at the end of last year in anticipation of interest rate cuts, but early in 2024 those hopes faded as some lenders raised mortgage rates. In recent months, more buyers have returned to the housing market, buoyed by rising consumer confidence and economic growth.
Alex Kerr, UK economist at Capital Economics, said: “Further declines in swap rates in September suggest there is scope for mortgage rates to fall further and for house price growth to accelerate next year.”