In an unexpected turn, UK house prices saw an increase in June, indicating a possible stabilisation of the property market ahead of the anticipated interest rate cuts from the Bank of England.

According to data from Nationwide, property prices rose by 0.2 per cent between May and June, following a 0.4 per cent increase in May. This comes after declines in both March and April. The average house price now stands at £266,064, marking a 1.5 per cent rise compared to the same time last year, up from a 1.3 per cent increase in the previous month. These figures have surpassed analysts’ expectations, with economists polled by Reuters predicting a 0.1 per cent month-on-month decline and a 1.1 per cent annual rise.

The drop in UK inflation to the Bank of England’s target of 2 per cent in May has reinforced market expectations that interest rates, currently at a 16-year high of 5.25 per cent, could be reduced as early as next month. House prices, which peaked at £274,000 in the summer of 2022, had fallen due to increasing borrowing costs deterring potential buyers. Although prices began to recover in the latter half of 2023 as mortgage rates eased, they have experienced fluctuations in 2024 due to persistent high inflation in the services sector.

Despite this recovery, mortgage approvals have continued to decline, reflecting the ongoing impact of high borrowing costs on the market. According to Bank of England data, net mortgage approvals for house purchases dropped to 60,000 in May, down from 60,800 in April and 61,086 in March. Remortgaging approvals also saw a slight decrease from 29,900 in April to 29,600 in May. While these figures were slightly above the 59,900 forecast by economists polled by Reuters, they remain significantly lower than the 65,340 recorded in May 2019.

Nationwide’s data revealed notable regional disparities in house price trends. Northern Ireland and the North West of England experienced strong annual growth of 4.1 per cent, while the South West and East Anglia saw declines of 1.5 per cent and 1.8 per cent, respectively. In London, where property prices are the highest with an average of £525,248, there was a 1.6 per cent annual increase.

Tom Bill, head of UK residential research at Knight Frank, described this year’s spring market boost as “a little lacklustre,” attributing it to high mortgage rates and election-related uncertainty. However, he remains optimistic, suggesting that a new government and the first rate cut since March 2020 could revitalise the market post-summer.

As we move forward, the property market’s trajectory will largely depend on the upcoming decisions by the Bank of England and the broader economic landscape. For now, the unexpected rise in house prices offers a glimmer of stability amidst the ongoing financial fluctuations.

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