Average house prices rose by 4.1% annually in January to reach £268,213, a slowdown versus the 4.7% annual growth recorded in December, figures from a lender showed.
The Nationwide house price index found that on a monthly basis, there was a marginal 0.1% rise in average values, which was softer than the 0.7% rise seen the month before.
Affordability weighing on the market
Robert Gardner, chief economist at Nationwide, said the housing market continued to show “resilience” despite ongoing affordability challenges.
This was in reference to its recently published affordability report, which showed that while there had been an improvement in the income to house price ratio, this was still “stretched by historical standards”, Gardner said.
Some mortgage and property market professionals attributed this to interest rates and suggested that more product innovation could help with this.
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Tomer Aboody, director of MT Finance, said actual growth in house prices was “very minimal as buyers face a challenging period due to affordability”.
He added: “Although rates remain reasonable, many in the market were hoping for a further cut by now, and are hopeful it won’t be long before we get one. More flexibility is needed from lenders in order to help buyers onto the ladder, and many are questioning whether the Chancellor’s growth message is realistic, as little help has been evident so far.”
Mark Harris, chief executive of SPF Private Clients, added: “Since the start of the year, mortgage pricing has not seen the consistent downwards trend that borrowers would like. However, if swap rates, which underpin the pricing of fixed rate mortgages, continue to slide, it is hoped this will be passed on to borrowers in the form of cheaper mortgage rates in coming days and weeks.
“With the Bank of England expected to reduce interest rates next week, the outlook for borrowers is looking up. With some forecasters expecting a handful of rate reductions this year, it is encouraging news for those thinking of buying a property or refinancing.”
Mark Eaton, chief operating officer at April Mortgages, said the report “underscores the immense challenge that is affordability, with deposits harder to save and house prices still significantly outpacing wage growth”.
He added that this was “made even worse by an inflated rental market and the cost-of-living crisis”.
Eaton continued: “Unless lenders innovate, and fast, the affordability problem is going nowhere. The Bank of Mum and Dad is all well and fine, but for many, it’s simply not an option.
“Higher loan-to-income loans could be one solution to climbing house prices, as they increase purchasing power and bring that first rung of the ladder into reach. They offer hope rather than a hard ‘no’.”
“While annual house price growth may have shifted downward, the modest month-on-month rise highlights the resilience of the UK property market, despite ongoing economic pressures.
“Even with borrowing costs still elevated compared to previous years, demand for housing remains strong, supported by a shortage of available homes. That evergreen supply issue will continue to accentuate the issue of affordability.
“The lack of innovation in the lending community is holding borrowers back and dashing their dreams,” he added.
Rush to beat the stamp duty hike
However, it was also noted that buyers were still active in the market, as many aim to complete a purchase before the stamp duty threshold rises in April.
Matt Thompson, head of sales at Chestertons, said: “In January, the property market saw particularly high demand from first-time buyers, who were motivated to beat April’s stamp duty deadline. This spike in buyer activity led to the majority of properties [exchanging] hands for the asking price, although some sellers, especially those in a rush to sell, agreed to enter price negotiations.
“As there is still time to benefit from the current stamp duty threshold, we expect more first-time buyers to enter the market over the coming weeks.”
Amy Reynolds, head of sales at Richmond estate agency Antony Roberts, said the first half of January was “a bit slow”, but the month had since turned out to be busier than usual.
She added: “The stamp duty holiday has helped, with an increase in sales agreed in those chains where there is a first-time buyer keen to take advantage of the discount before the end of March. While this has been welcome, there is concern that once the stamp duty holiday ends, there will be a dip in activity and transactions.
“The value of a stamp duty incentive to first-time buyers is instant – it is real cash in their pockets, allowing someone to buy who otherwise might not be able to, and this impacts those trying to move because they need a first-time buyer at the bottom of the chain in order for the second-stepper to move on.”
Reynolds said: “It is the sale of larger homes that stimulates the economy and those higher-value transactions brings in significant revenue. We would therefore urge the government to reconsider and introduce much-needed further stamp duty concessions in the spring statement.”
