UK house prices rose 0.7% in January, said Nationwide. That pares the annual decline to -0.2%, up from -1.8% last month, which is the best reading since January 2023. Falling mortgage rates has transformed sentiment. Two-year fixed-rate mortgages at about 4.5% are higher than most people are used to, but appear manageable. While it might take some time for the annual rate of inflation to fall from 4% to the 2% target, the fact that conditions are trending better is enabling people to make decisions they had been putting off. “Inflation has fallen faster than predicted, which means financial markets believe rates will drop by a full percentage point in 2024,” says Knight Frank’s Tom Bill. “Whatever the Bank of England decides to do, mortgage lenders set their rates based on these lower expectations, which is increasing demand…we expect UK house prices to rise by 3% this year.” Mortgage rates The effective interest rate on mortgages drawn in December fell by 6 basis points to 5.28%, the first drop since November 2021, the Bank of England said yesterday. Mortgage approvals for house purchase, a good indication of future borrowing, ticked up to 50,500, from 49,300 (see chart). That’s up about a quarter compared to December 2022 but still a quarter below the five-year average. The value of new lending was outstripped by mortgage debt repayments – borrowers repaid a net £0.8 billion over the course of the month. Mortgage rates will continue to drive a moderate recovery, provided they remain relatively stable. Swap rates ticked up after data published earlier this month revealed a few, continuing inflationary pain points. The price war among high street lenders appears to be running out of steam a little
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