Market News

BY  Reed Landberg, Bloomberg News

, Moneyfacts

(Bloomberg) -- UK house prices rose for the first time in three months, a sign that the market is stabilizing in the face of high borrowing costs, one of the biggest mortgage lenders said.

The average cost of a home rose 0.4% in May after an drop of the same size the month before, Nationwide Building Society said Friday. That was bigger than the 0.2% gain economists had expected and the strongest reading since February, the last time prices rose.

In a separate release, the Bank of England said mortgage approvals – an indicator of future housing market activity – were little changed in April. Bank and building societies authorized 61,140 home loans, broadly in line with market forecasts and above the average of the previous six months. 

The housing market slumped last year after the BOE lifted interest rates to the highest level in 16 years in its bid to curtail inflation, adding to the worst cost-of-living crisis in decades. Now, with falling inflation boosting living standards and rate cuts in sight, buyers are cautiously returning to the market.

“The market appears to be showing signs of resilience in the face of ongoing affordability pressures following the rise in longer term interest rates in recent months,” Robert Gardner, Nationwide’s chief economist, said in a statement Friday. “Consumer confidence has improved noticeably over the last few months, supported by solid wage gains and lower inflation.”

With house prices just off record levels, the plight facing “generation rent” is set to feature at a general election campaign now underway. The opposition Labour Party appears on track to take office with Prime Minister Rishi Sunak’s Conservatives government trailing in polls.

What Bloomberg Economics Says...

“The housing market is showing signs of resilience despite affordability issues limiting household buying power. While the recovery is likely to be bumpy, we expect activity to pick up further once the general election is over and the Bank of England starts cutting interest rates from August.

—Niraj Shah, economist. Click for the REACT

Mortgage rates surged in 2023 as the BOE battled to bring down inflation. Those rates have eased since and expectations are that the BOE will reduce its benchmark lending rate later this year. However, property analysts said there is little prospect of a resurgence in house prices.

“House prices do not feel poised to rally, despite a seasonal increase in demand,” said Tom Bill, head of residential research at Knight Frank. “High supply is keeping a lid on prices and stubborn services inflation means swap rates are rising and mortgages starting with a ‘3’ feel some way off.”

Houses for sale in Britain hit an eight-year high in May a sign sellers are regaining confidence, according to property portal Zoopla. However, buyers are treading carefully. Almost a third of homes currently available for sale were also listed for sale in 2023 but failed to find a buyer. 

Nationwide, the first of the major housing market indicators for the month, said prices are now about 1.3% higher than a year ago. The average cost of a home was £264,249 ($336,010) in May, which is about 3.5% below the peak recorded in August 2022.

In a sign of cautious sentiment, the BOE said consumers borrowed just £730 million on credit cards and other unsecured loans in April. That was the lowest since 2021 and half the £1.4 billion economists were forecasting. It came in a month that saw a sharp fall in retail sales as rainy weather kept people out of the shops.

(Adds BOE mortgage approvals and consumer credit figures)