The Nationwide House Price Index revealed that average values reached £272,664 in July, following a 0.6% monthly rise.
Robert Gardner, chief economist at Nationwide, said July saw a “modest pick-up in the rate of annual house price growth”.
He added: “Looking through the volatility generated by the end of the stamp duty holiday, activity appears to be holding up well. Indeed, 64,200 mortgages for house purchase were approved in June, broadly in line with the pre-pandemic average, despite the changed interest rate environment.”
Despite this growth, Nationwide said the house price to average earnings ratio had fallen to its lowest point in over a decade, at around 5.75.
Gardner added: “After deteriorating markedly in the wake of the pandemic, housing affordability has been steadily improving, thanks to a period of strong income growth alongside more subdued house price growth and a modest fallback in mortgage rates.
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“While the price of a typical UK home is around 5.75 times average income, this ratio is well below the all-time high of 6.9 recorded in 2022 and is currently the lowest this ratio has been for over a decade. This is helping to ease deposit constraints for potential buyers, as has an improvement in the availability of higher loan-to-value mortgages.”
He said: “Similarly, the interest rate on a typical five-year fixed rate mortgage is around 4.3% for a borrower with a 25% deposit. This is still over three times the all-time lows prevailing in autumn 2021, but well below the highs of c.5.7% reached in late 2023.
“Unemployment remains low, earnings are still rising at a healthy pace (even after accounting for inflation), household balance sheets are strong and borrowing costs are likely to moderate a little further if bank rate is lowered further in the coming quarters as we, and most other analysts, expect.
“Providing the broader economic recovery is maintained, housing market activity is likely to continue to strengthen gradually in the quarters ahead.”
The housing market is not slowing down
Jonathan Hopper, CEO of Garrington Property Finders, said the balance between supply and demand was “tipping further in favour of buyers”.
Hopper added that while the national rate of price inflation showed growth, prices were either flat or falling in many areas, as there were now “simply too many sellers and not enough serious buyers”.
He added: “Bank of England data shows that the average mortgage interest rate for buyers has now fallen for four months in a row, and the prospect of a further base rate cut next week could make borrowing more affordable still, and inspire more renters to consider buying.
“Even though Nationwide’s data shows that homes are now mathematically more affordable than they have been in a decade, buyer sentiment is finely balanced. Cheaper borrowing costs and abundant choice mean this is a buyer’s market, but most buyers are still being prudent and pragmatic, and sellers must dance to their tune.”
Mark Harris, chief executive of SPF Private Clients, added: “Lower mortgage rates, with the expectation of more reductions to come, are giving the market impetus and putting borrowers in a stronger position when it comes to negotiating their property purchase. This, in turn, is keeping prices in check.
“With the markets expecting a further rate reduction next week, we could be in for a busy autumn. Lenders continue to trim their mortgage rates, while easing of mortgage lending rules should also enable borrowers to take on bigger mortgages in coming months.”
Tanya Elmaz, managing director of intermediary sales at Together, said: “Against expectations, house prices have returned to growth – defying predictions that the market was at risk of an extended slowdown following the end of the stamp duty holiday in April this year.
“The favourable mortgage rates on offer to buyers have won out over headwinds such as the high tax burden and the faltering wider economy. This bodes well for the rest of the year, especially after the typically quieter summer months, and offers positivity for first-time buyers and second-steppers to make their move before prices rise further.”
