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Highlights:
- Strong Monthly Growth: UK house prices grew by 1.2% in November, marking the fastest annual rise in two years.
- Labour Market Stability: Resilient employment and strong income gains underpinned the housing market recovery.
- Interest Rate Impact: Despite high mortgage rates, market activity remained steady, reflecting robust buyer confidence.
UK house prices experienced a significant rebound in November, with an annual growth rate of 3.7%, up from 2.4% in October, according to data from Nationwide. The 1.2% monthly increase was the largest annual rise since November 2022, bringing house prices to just 1% below their historic peak. These figures exceeded economists’ expectations, who had forecasted a modest 0.2% monthly increase and a 2.4% annual rise.
Drivers Behind the Surge
Robert Gardner, Nationwide’s chief economist, described the acceleration as surprising, given stretched affordability due to elevated house prices and interest rates. Despite these challenges, several factors contributed to the housing market's resilience:
- Labour Market Stability: Low unemployment and robust income growth, even after adjusting for inflation, have supported buyer confidence.
- Healthy Household Balance Sheets: Debt levels relative to income are at their lowest since the mid-2000s, strengthening financial positions.
- Mortgage Approval Levels: Mortgage approvals have nearly returned to pre-pandemic levels, reflecting steady buyer interest despite the high-rate environment.
Gardner noted that recent activity has been steady, and the temporary increase in stamp duty thresholds, set to expire in March, has not significantly influenced current trends. The majority of mortgage applications were initiated before the announcement of this change.
Economic and Policy Considerations
Economists highlighted the interplay between affordability and rising mortgage rates. Ruth Gregory from Capital Economics suggested that the November growth indicates strengthening momentum in the housing market. However, she cautioned that affordability constraints could temper this momentum in the coming months.
Gregory added that unless house prices decline in December, annual growth in the fourth quarter is expected to reach 3.2%, surpassing earlier forecasts. She also suggested that further reductions in mortgage rates could provide enduring support to the market in 2025.
Matt Swannell of the EY ITEM Club echoed similar sentiments, noting that while mortgage rates could edge higher due to adjusted market expectations, the housing market’s short-term recovery appears robust. Over the longer term, he projected a gradual improvement in market conditions as the Bank of England lowers interest rates slowly through 2025, though rates are likely to remain above pre-pandemic levels.
Outlook for 2025
The combination of stable labour market conditions and lower inflation is expected to maintain steady activity in the housing market. Gardner predicted a spike in transactions in early 2025 as buyers aim to complete purchases before the stamp duty changes take effect. This could be followed by a slowdown similar to patterns observed during previous stamp duty adjustments.
With affordability still under pressure and mortgage rates stabilizing at higher levels, economists foresee gradual improvement rather than a dramatic recovery. Nonetheless, the November data reflects a resilient housing market supported by strong fundamentals and buyer confidence.
