Residential property prices edged up 0.2% last month amid promising signs that mortgage rates are starting to fall, the Nationwide said on Friday.

The building society said financial markets estimated interest rates had peaked and would start to fall, easing affordability pressures, although a big drop in borrowing costs is unlikely in the near future.

Property prices have now increased risen for the past three months, but Nationwide highlighted that values in November were 2% lower than at the corresponding period last year.

The average price of a UK home is now £258,557, £5,231 down on the value of a typical property in the same month last year, the lender said.

“There has been a significant change in market expectations for the future path of the bank rate in recent months which, if sustained, could provide much-needed support for housing market activity,” said Robert Gardner, the chief economist at Nationwide. “By the end of November this had shifted to a view the rates have now peaked and that they will be lowered to about 3.5% in the years ahead.”

However, last week Andrew Bailey, the governor of the Bank of England, said there was no immediate prospect of an interest rate cut as the Bank continues to battle to bring inflation back to its 2% target.

Industry reaction:

Tom Bill, head of UK residential research at Knight Frank said: “If we are not at the bottom of the current slowdown in the UK housing market, we must be close. Price indices are potentially more volatile due to low transaction numbers but sentiment has improved in recent weeks as the worst of the economic data moves behind us. Inflation is below 5%, the best five-year fixed-rate mortgage has fallen to less than 4.5% this week and speculation is focussed on the timing of the next rate cut not the size of the next rise. After a flat autumn, the UK housing market should see a spring bounce in 2024 provided a general election is not called in the first half of next year.”

Nathan Emerson, CEO of Propertymark, commented: “There is no denying 2023 has been a very uneven year for the UK housing market. We have seen the most ‘unperfect storm’ of high inflation and high interest rates giving many households an unpresented and near unworkable scenario each month.

“While there are indications a turning point maybe on the horizon, the dust needs to fully settle and we must remain prudent. Andrew Bailey, Bank of England Governor, recently suggested there will be no quick drops in base rate for the foreseeable future to keep inflation in check – so ultimately the pressure will remain on many households for a while longer yet.

“Propertymark remain optimistic the entire UK housing market will steadily gain traction, but it’s unlikely to be a quick process.”

Nicky Stevenson, MD at Fine & Country, said: “House prices rose slightly in November, underpinned by a pool of motivated buyers who are expressing additional confidence after the base rate plateaued.

“Mortgage approvals, an indicator of future sales, rose again in October to reach a three-month high, indicating that people are still eager to move home.

“Competition in the mortgage market is adding extra encouragement, which is creating a calmer property market in the final months of the year when combined with falling inflation and stable employment figures.

“We expect to see steady demand in the new year as people decide to renew their ambitions to move, and this should help to keep prices relatively stable.

“Although it remains important for sellers to price their property realistically, good quality homes in sought-after locations continue to attract strong demand.”

Guy Gittins, CEO at Foxtons, commented: “More property market positivity today, with house prices recording a second consecutive monthly increase.

“Although the market is yet to return to full health when viewing house price performance on an annual basis, it appears as though a freeze in interest rates is helping to boost homebuyer sentiment and bring a greater degree of stability and this puts us in very good stead looking ahead to the new year.”

Verona Frankish, CEO of Yopa, said: “A second consecutive monthly increase in the rate of house price growth provides further evidence that the UK property market will finish the year on the front foot

“The latest Bank of England data also shows that mortgage approvals have started to climb following a second decision to hold the base rate at 5.25%.

“It’s clear that this greater degree of stability is already boosting market sentiment and allowing buyers to act with more confidence.

“The fact that they are also choosing to do so this side of the Christmas break is positive and suggests that we should see a far more settled landscape come the new year.”

Sam Mitchell, CEO, Purplebricks, said: “Banks are competing more aggressively on the rates they’re offering to consumers following two consecutive interest rate holds, which is driving increased activity in the housing market during a time when we usually experience a seasonal slowdown. In November, Purplebricks has seen viewings and offers increase week on week, which is unheard of this time of year.

“It is our sense that buying and selling decisions that have been held off in the face of 14 interest rate rises in a row and through the cost of living crisis will be released to fuel accelerated activity in 2024. This will be aided by increased heat in the rental market that will continue to fuel first-time buyers’ appetite to get on the property ladder. Such behaviour makes for a positive new year, as we pass peak inflation and this begins to filter through to improve overall confidence in the housing market.”

Iain McKenzie, CEO of The Guild of Property Professionals, commented: “The property market managed to buck sluggish economic trends last month, with house prices showing a slight rise.

“It’s an important reminder that property prices may fluctuate through challenging times but growth is never far away.

“The recent dip may have created opportunities for buyers that previously felt priced out of owning their own home.

“Homeowners may worry that now is not the best time to sell and that their property could lose value, but it’s important to take a long-term perspective on the matter.

“With cost-of-living pressures alleviating and inflation cooling, consumer confidence shows signs of improving in the coming year, suggesting a return to steady growth in the property market in 2024.”