House prices rose for a fifth consecutive month in January, but the annual rate of growth slowed as the UK property market showed signs of “softening”, according to Nationwide.
The building society’s monthly tracker found that prices in January rose 0.1% on the previous month, with the cost of an average home at £268,213, down on the 0.7% monthly increase recorded in December and 1.2% rise in November.
However, on an annual basis, the rate of increase in UK house prices slowed to 4.1%, down from 4.7% in December.
While Nationwide noted that the figures showed that house price growth was softening at the start of this year, the 4.7% annual rate marked the strongest rate of growth since October 2022, the month after the former prime minister Liz Truss’s disastrous mini-budget sent borrowing costs soaring.
“The housing market continues to show resilience despite ongoing affordability pressures,” said Robert Gardner, the chief economist at Nationwide. “While there has been a modest improvement over the last year, affordability remains stretched by historic standards.”
Earlier this week, the London estate agency Foxtons said house sales in the capital were at their highest level in almost a decade, and that it expected a strong first quarter.
Earlier this month, Nationwide said it expected a sales rush, with buyers trying to push through purchases to avoid paying additional tax when the government’s changes to stamp duty in England and Northern Ireland come into force on 31 March.
In September 2022, the government temporarily increased the nil rate of stamp duty, the amount before people have to start paying stamp duty on a purchase, from £300,000 to £425,000 for first-time buyers and from £125,000 to £250,000 for those buying an additional home. Rachel Reeves said during her budget in October that this would be scrapped from 31 March.
Karen Noye, a mortgage expert at Quilter, said: “Many first-time buyers have, in recent weeks, been scrambling to get their property sales motoring ahead of the stamp duty rules changing in April.
“This might bloat prices in weeks to come as people lock in deals in the hope they can avoid higher taxes.
“For most, though, it is now too late, and people will struggle to get a house purchase through before the rule change. Given how much affordability is stretched for first-time buyers, this is yet another blow to those looking to get on the housing ladder.”
Nationwide’s recent affordability report highlighted the issues hitting first-time buyers in particular.
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The report showed that a prospective buyer earning an average UK income and buying a typical first-time buyer property, with a 20% deposit, would have monthly mortgage repayments accounting for 36% of their take-home pay. This is much higher than the historic average of 30%.
The ratio of house prices to earnings for first-time buyers stands at five times, well above the long-term average of 3.9 times income, making saving a deposit a major financial barrier to entry to the property market.
“A key demographic that will determine the market’s sustainability this year is first-time buyers,” said Jonathan Handford, the managing director at the estate agent group Fine & Country. “Looking ahead, a ‘likely’ interest rate cut by the Bank of England in February could further boost the market by prompting lenders to lower mortgage rates.”
Hanford said that the modest 0.1% growth in house prices in January was a sign of stability but concerns remained over factors including the stubborn rate of inflation, which edged down to 2.5% in December but was still above the Bank of England’s target of 2%.
“The coming months will reveal whether these trends hold or if affordability concerns and inflation start to weigh on growth,” Handford said.
