UK house prices have increased at the fastest rate in 18 months, although high mortgage rates still pose challenges for many prospective buyers, according to Nationwide. 

The building society reported that the average house price in July was £266,334, up 0.3% from the previous month. This resulted in an annual growth rate increase from 1.5% in June to 2.1% in July, the highest since December 2022. 

Nationwide’s chief economist, Robert Gardner, said that housing market activity has remained steady, with about 60,000 mortgage approvals each month. 

“Although this is about 10% below pre-pandemic levels, it is still a respectable pace given the higher interest-rate environment,” he said.

Recently, lenders like Halifax, NatWest, and Santander have reduced interest rates by up to 0.20 percentage points. Last week, Nationwide, the UK’s largest lender, began offering a sub-4% deal for some new buyers. However, current rates are still significantly higher than those before and just after the pandemic.

Gardner explained that for borrowers with a 25% deposit, the rate on a five-year fixed-rate mortgage has been around 4.6% in recent months, more than double the 1.9% average in 2019. 

He said: “As a result, affordability is still stretched for many prospective buyers.” He added that this is expected to improve gradually as wage growth outpaces house price growth and borrowing costs decrease slightly in the future.

More reaction:

‘Building steadily’

Guy Gittins, CEO of Foxtons, said: 

“Property market momentum has been building steadily so far this year and, despite macro headwinds and the surprise of a snap election, we’re yet to see this momentum show any signs of slowing.”

‘Activity increase’

Anthony Codling, managing director, equity research, RBC Capital Markets, said:

“Housing market activity remains stable, although the Nationwide notes that affordability is still stretched for many, but with mortgage rates expected to fall in the coming month the housing market may see an increase in activity as we move from summer to autumn and this will provide housebuilders the opportunity not only to close sales for 2024, but also to start building the order books for 2025.”

‘Demand to increase’

Tom Bill, head of UK residential research at Knight Frank, said: 

“Despite the uncertainty of a general election, house prices were driven slightly higher this summer by the typical seasonal pattern of buyers needing to move for schooling or work. 

“We expect transactions and demand to increase further this autumn… and more mortgages dip below the psychological threshold of 4%, which should produce UK house price growth of 3% in 2024.”