UK House Prices Experience Fastest Annual Growth in Two Years

House prices recorded their most rapid annual increase in two years during November, according to the latest survey conducted by Nationwide. The lender reported that the cost of a typical UK home rose by 3.7% last month compared to the previous year, with property values nearing a record high. Nationwide described this acceleration in house price growth as “surprising, since affordability remains stretched by historic standards.” Housing experts anticipate an increase in the number of sales over the next few months, ahead of stamp duty changes scheduled for April. Nationwide indicated that house prices advanced by 1.2% between October and November, representing the largest month-on-month increase since March 2022. The building society stated that the average property now costs £268,144, close to the record high of £273,751 reached in August 2022. Nationwide noted that the housing market has remained “relatively resilient” in recent months, with the volume of mortgage approvals approaching pre-pandemic levels. Bank of England figures released last week showed that mortgage approvals in October reached their highest monthly level since August 2022. Robert Gardner, Nationwide’s chief economist, suggested that low unemployment rates combined with pay increases outstripping inflation had helped to “underpin” the housing market. During the October Budget, Chancellor Rachel Reeves announced that reduced stamp duty rates in England and Northern Ireland would cease in April next year. While some housing market analysts attributed the significant price rise last month to this announcement, Mr. Gardner deemed this “unlikely,” stating that “the majority of mortgage applications commenced before the Budget announcement.” These upcoming changes will mean that homebuyers will begin paying stamp duty on properties valued over £125,000, a reduction from the current threshold of £250,000. First-time buyers currently benefit from no stamp duty on homes up to £425,000, but this will decrease to £300,000 in April. Nationwide projected a surge in house sales during the first three months of 2025 as individuals aim to meet the deadline, followed by a decline in activity in the subsequent months. Overall, Mr. Gardner expressed an expectation for the housing market to gradually strengthen as consumers’ spending power is boosted by lower interest rates and higher wages. However, Sarah Coles, head of personal finance at Hargreaves Lansdown, warned that with prices near record highs and mortgage rates remaining “relatively high,” there was “a growing chance that affordability raises its ugly head again.” Mortgage rates had begun to fall in the summer after the Bank of England started cutting its key interest rate. Nevertheless, mortgage rates have slightly increased in recent weeks amid expectations that the Bank will not cut rates as quickly as had been previously expected. Additionally, millions of people are still expected to see their mortgage repayments increase over the next few years as their current fixed-rate deals conclude. Last week, the Bank of England estimated that approximately 4.4 million mortgage holders are projected to experience payment increases by 2027. It stated that a typical owner-occupier coming off a fixed rate in the next two years would see their monthly mortgage repayments rise by around £146. According to the financial information website Moneyfacts, the average two-year fixed mortgage rate is currently 5.52%, while the average five-year fixed rate is 5.28%. To address the issue of mortgage affordability, an increasing number of homebuyers are opting for deals with longer-than-usual repayment periods. Ultra-long, or extended, mortgages have become more prevalent as people seek to spread the cost of purchasing a house. More than a million mortgages issued in the past three years are expected to be repaid by homebuyers into their pension age. While this strategy can reduce the size of monthly payments, it ultimately makes the loan more expensive, and experts caution that it can affect financial planning for retirement.