UK Mortgage Prices Soar to Fastest Growth in Nearly Two Years—What’s Behind the 3.7% Price Jump?

In a surprising development, UK mortgage prices saw their sharpest increase in almost two years during November, despite affordability challenges driven by near-record valuations. According to data from Nationwide, the annual growth rate surged to 3.7% last month, up from 2.4% in October, marking the fastest pace since November 2022.

This rise brought the average price of a home purchased through Nationwide to £268,144, just 1% below its all-time high. Nationwide’s figures, though timely, differ from the Office for National Statistics (ONS) data, which reported a 2.9% annual increase in average UK house prices to £292,000 as of September 2024.

UK Housing Market Defies Affordability Challenges

The current market stands in stark contrast to the summer of 2022, when house prices reached their peak amid a post-pandemic rush for homes fuelled by historically low interest rates. Today, rising borrowing costs—driven by central banks’ efforts to combat inflation—have created an affordability conundrum.

Yet, demand for housing appears to defy these pressures. Robert Gardner, Nationwide’s Chief Economist, acknowledged the paradox:

“The acceleration in house price growth is surprising, since affordability remains stretched by historic standards, with house prices still high relative to average incomes and interest rates well above pre-Covid levels.”

Mortgage Resilience Fuelled by Low Debt and Strong Jobs

Gardner highlighted that mortgage approvals have approached pre-pandemic levels despite the challenging rate environment. He attributed this resilience to solid labour market conditions, characterized by low unemployment and robust income growth that has largely withstood inflationary pressures.

Additionally, household debt relative to income is at its lowest level since the mid-2000s, further bolstering buyer confidence. On a monthly basis, prices rose by 1.2% in November, marking the strongest gain since March 2022 after adjusting for seasonal factors.

Main Factors Supporting Resilience:

• Labour Market Strength:
  • Low unemployment levels.
  • Strong nominal income growth, even after accounting for inflation.
• Lower Household Debt Levels:
  • Household debt as a percentage of income is at its lowest since the mid-2000s, creating more financial stability.
• Stable Mortgage Activity:
  • Mortgage approvals nearing pre-pandemic levels, indicating steady demand.

Economist Cautions on UK Housing, Sees Rate Cuts Sustaining Market

Despite the recent momentum, Ruth Gregory, Deputy Chief UK Economist at Capital Economics, expressed caution: “The ratio of prices to incomes is still stretched by past standards.” However, Gregory noted that anticipated reductions in mortgage interest rates could sustain housing market activity into next year.

Impact of Labour Budget on UK Housing

Nationwide emphasized that the figures were largely unaffected by Labour’s inaugural budget, as most mortgage applications reflected in the data were initiated before its announcement on 30 October. Chancellor Rachel Reeves’ budget introduced modest changes to stamp duty, including an increase in taxes on second-home purchases, effective April 2025.

However, this policy could lead to an increase in short-term transactions, as buyers try to complete their purchases before the deadline, followed by a potential drop in activity.

As the housing market adapts to evolving economic and policy landscapes, November’s unexpected price acceleration underscores its continued resilience amid significant challenges.