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UK Property Market Sees Incremental Rise in House Prices, Rapid Recovery Unlikely

The latest report from Nationwide's monthly House Price Index revealed a marginal 0.2 percent increase in house prices last month compared to October. November marked the third consecutive month of growth in UK house prices, driven by expectations of reduced mortgage expenses and growing wages, thereby stimulating demand within the property sector.

According to the Index, house prices experienced a 2 percent decline in November compared to the same period last year, showing a slight improvement from the 3.3 percent year-on-year decrease recorded in October. The average property price across the UK stood at £258,557 in November.

Nationwide's chief economist, Robert Gardner, highlighted that the reduction in mortgage approvals for house purchases, which remain approximately 30 percent below pre-pandemic levels, has created a buyer's market in London. Sellers in London are more inclined to accept significant reductions in their asking prices due to falling house prices.

Gardner noted that while the year-on-year fall in house prices persists, it represents the strongest outcome observed in nine months. He pointed out a substantial shift in market expectations concerning the future trajectory of the bank rate, potentially offering vital support for housing market activity if sustained.

The Bank of England's decision to maintain interest rates at 5.25 percent last month led to speculation that borrowing costs may have peaked and could start to decrease in the upcoming year. This change in expectations has contributed to a decline in longer-term interest rates, known as swap rates, influencing mortgage pricing and possibly alleviating affordability pressures affecting housing market activity.

Despite the anticipation of modestly lower borrowing costs, rising wages, and slower house price changes fostering increased housing market activity in the coming months, Gardner cautioned against expecting a swift rebound. He highlighted ongoing challenges such as subdued consumer confidence and persistently low levels of new buyer enquiries reported by surveyors.

Tom Bill, head of UK residential research at Knight Frank, expressed optimism about an improved sentiment in recent weeks, but Gabriella Dickens, a senior economist at Pantheon Macroeconomics, cautioned that the recent upward trend in Nationwide's index might reverse in the near term, suggesting a potential recovery in house prices several months away.

While the prospect for next year appears brighter due to reduced market expectations for the bank rate, Dickens predicts that mortgage rates could decline further and faster than previously anticipated.

Data from Moneyfacts indicated a slight decrease in the average two-year fixed residential mortgage rate to 6.05 percent, hinting at a potential drop below the 6 percent mark. However, property lender MT Finance's director, Tomer Aboody, emphasized the necessity for government intervention to revitalize the market and stimulate a recovery, calling for increased housing stock and a restructured stamp duty.

The Chancellor's Autumn Statement did not include any adjustments to stamp duty, with forecasts suggesting that house prices, particularly in London, may remain low in 2024 before stabilizing and gradually rising over the subsequent years.

Various property forecasters, including Savills and the Office for Budget Responsibility, anticipate continued pressure on house prices in London and nationwide, with predictions of further drops due to high interest rates and the cost-of-living crisis.

CEO of Purplebricks, Sam Mitchell, anticipates a surge in transactions by first-time buyers eager to transition from renting to homeownership in the coming year, reflecting an increased appetite within the market. He believes that improved confidence will emerge as inflation peaks and positively influences the housing market.

Overall, while there are prospects for improvement, uncertainties regarding interest rates, inflation, and consumer confidence continue to shape the future trajectory of the UK housing market.



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