UK house prices have advanced marginally in January as buyers continue to struggle with affordability pressures.
ADVERTISEMENTThe UK Nationwide House Price Index for January was released on Friday, increasing 4.1% on an annual basis, according to Nationwide Building Society.
This was a fall from the two-and-a-half-year high of 4.7% seen in December, while also missing analyst expectations of 4.3%.
House prices rose 0.1% on a month-on-month basis in January, down from 0.7% in December, as well as below market estimates of 0.3%.
This was mainly because of ongoing high interest rates, as well as high deposit requirements, which have made it much harder for purchasers, especially first-time buyers, to save for a deposit.
Soaring rents and an ongoing cost of living crisis have also exacerbated this situation.
Robert Gardner, chief economist at Nationwide, said in the house price index report on the company’s website: “The housing market continues to show resilience despite ongoing affordability pressures.
«As we highlighted in our recent affordability report, while there has been a modest improvement over the last year, affordability remains stretched by historic standards.»
He added: “A prospective buyer earning the average UK income and buying a typical first-time buyer property with a 20% deposit would have a monthly mortgage payment equivalent to 36% of their take-home pay – well above the long-run average of 30%.
“Furthermore, house prices remain high relative to average earnings, with the first-time buyer house price to earnings ratio standing at 5.0 at the end of 2024, still well above the long run average of 3.9.”
Gardner highlighted that approximately 40% of first-time buyers needed to turn to family and friends for help in getting a deposit together in 2023-2024. This included loans, gifts and inheritances.
However, despite these obstacles, overall home ownership levels have not changed much in the last few years, staying stable at 65% in 2024, according to the latest English Housing Survey by the Ministry of Housing, Communities & Local Government (MHCLG).
UK housing market remains resilient
Although house prices rose less than expected in January, the housing market has remained resilient lately, despite increasIng worries about the UK’s economic outlook, after the Chancellor Rachel Reeves revealed £40 billion (€47.86bn) in tax raises in her first Budget.
Alice Haine, personal finance analyst at Bestinvest said in a statement: “While the start to 2025 is slightly more muted than the previous month, demand remains robust, something likely to continue over the next couple of months as buyers rush through deals ahead of an increase in stamp duty land tax from the start of April.
“The Government’s decision not to extend the current relief on stamp duty thresholds beyond the end of March is likely to be a motivating factor for many first-time buyers.
«Another motivating factor could come next week if the Bank of England delivers a third rate cut, a move likely to give slightly improving affordability levels another boost.”
ADVERTISEMENTShe continued: “Add in the prospect of more support from the Government if proposals to loosen lending rules go ahead and the outlook for first-time buyers and those looking to refinance or upsize may certainly be improving.”
However, she highlighted that whether this resilience continues after stamp duty thresholds go back to their lower levels, from 1 April 2025, is yet to be seen. This could possibly inflate the price of a house purchase considerably.
