House prices show growth but conflicting indicators point to uncertainty in near-term prospects

The housing market in the UK is experiencing conflicting trends, with house prices growing on an annual basis but economic indicators pointing to continued uncertainty in the near-term future. According to Nationwide, house prices grew by 0.7% in February, marking the first positive annual growth since January 2023. This increase can be attributed to a surge in demand at the beginning of the year, leading to greater market activity.

However, the Bank of England is facing a challenging balancing act of combating inflation while dealing with low economic growth. The UK slipped into a technical recession at the end of 2023, despite wage growth outstripping inflation, as reported by the ONS. These mixed signals have delayed expectations for the first base rate cut, with predictions from Oxford Economics now pointing towards a cut in June, followed by two more later in 2024.

Mortgage lenders are exercising caution amidst the economic uncertainty and rising swap rates. Many have raised their rates after initially lowering them at the start of the year in anticipation of base rate cuts. This delay in rate cuts is expected to keep mortgage rates higher for longer, potentially dampening demand and easing upward pressure on prices.

Despite this uncertainty, buyers have taken advantage of previous decreases in mortgage rates, driving up market activity. Mortgage approvals in January reached 55,200, the highest in 15 months, supporting a 27% increase in sales agreed in February compared to the same period last year, as reported by TwentyCI. While completed transaction numbers were down in January, they are expected to rise in the coming months due to increased sales agreed at the start of 2024.

The housing market is showing regional disparities, with some areas experiencing house price falls. In the North and Midlands, 65% of local authorities saw price decreases due to affordability pressures. Affordability constraints were even more pronounced in the South, where 92% of local authorities reported annual price falls.

On the rental side, annual rental growth across the UK decreased slightly to 7.8% in January, with Scotland being the only region with growth over 10% due to rent control policies reducing supply. Other northern regions, such as the North East and North West, also saw above-average rental growth.

As the housing market navigates through these conflicting signals, it will be interesting to see how the coming months unfold and how policymakers respond to these challenges.