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HomeNews UKHouse prices edge up as hopes rise of lower mortgage rates

House prices edge up as hopes rise of lower mortgage rates

  • By Michael Race
  • Business correspondent, BBC News

House prices rose 0.2% last month amid “encouraging signs” that mortgage rates are starting to fall, Nationwide said.

The building association said financial markets estimate interest rates have peaked and will begin to fall, easing pressure on affordability.

However, the country’s chief economist warned that it would be unrealistic to expect borrowing costs to decrease sharply in the near future.

Interest rates set by the Bank of England are at a 15-year high of 5.25%.

The bank has increased its base interest rate to try to slow down inflation, which is the rate at which consumer prices increase and reduce the cost of living.

But these higher interest rates have pushed up mortgage rates, making it more expensive for people to afford to buy a home.

According to Nationwide, house prices have now increased monthly for three consecutive months, taking the average price of a UK home to £258,557.

However, the lender also said real estate prices were 2% lower than at the same time last year.

Building societies’ data is based on their own mortgage lending, so it does not include cash buyers or buy-to-let deals. According to the latest official data, cash buyers account for more than a third of home sales.

The average house price remains around £40,000 higher than at the peak of Covid as demand in the market led to a surge in prices, as people working from home sought more space and took advantage of the holiday season pay taxes.

Robert Gardner, Nationwide’s chief economist, said that the housing market was “holding up a little better than expected”.

“There are some encouraging signs that mortgage rates have started to fall, which will ease affordability pressures,” he said, adding that borrowing costs have “ “really a drag on the market” recently.

He told the BBC’s Today program that financial markets think interest rates have now peaked and will fall in coming years, which will drag down long-term interest rates that underpin mortgages.

“But because affordability is stretched, I think it’s unrealistic to think that that’s going to change significantly,” he added. No one expects mortgage rates to drop significantly.”

Mr Gardner said the jobs market would prevent house prices from falling significantly, but admitted it would take time for incomes to outpace property price growth and affordability improve.

According to financial information service Moneyfacts, the average two-year fixed mortgage rate was 6.04% on Friday, while the average five-year deal was 5.65%.

Figures from the Bank of England released this week showed the number of mortgages approved for homebuyers rose in October to 47,400, from an eight-month low of 43,300 recorded in September.

‘The future is brighter’

Gabriella Dickens, senior economist at Pantheon Macroeconomics, said the monthly increase in nationwide figures is likely to “reverse in the very near term”.

“It looks like it will be several months before there is a material recovery in house prices,” she said, but added: “However, the outlook for next year will be brighter.”

While markets bet that interest rates have peaked, the Bank of England has repeatedly warned off suggestions that interest rates will soon be cut.

Inflation fell to 4.6% in the year to October, but remains more than double the Bank’s 2% target.

The bank has twice decided to keep interest rates at 5.25%, but governor Andrew Bailey has warned interest rates will stay higher in the long run.

What happens if I miss a mortgage payment?

  • A shortfall equivalent to two or more months’ worth of repayments means you’re officially in arrears
  • You should contact your lender as soon as you realize you will have trouble repaying your loan – the sooner the better
  • Your lender must make reasonable efforts to reach an agreement with you
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