Surge in property transactions expected until March, followed by a slowdown
UK house prices increased by 3.9% to £270,493 year over year in February, maintaining the same annual growth rate seen in January, according to the latest data from Nationwide.
On a monthly basis, prices rose by 0.4% after adjusting for seasonal factors, marking the sixth consecutive month of gains.
“Housing market activity has remained resilient in recent months, despite ongoing affordability challenges,” said Robert Gardner (pictured left), chief economist at Nationwide Building Society. “Indeed, the second half of 2024 saw a noticeable pick up in total housing transactions, which were up 14% compared with the same period in 2023.”
However, the latest Nationwide House Price Index showed that overall transactions for 2024 remained 6% lower than 2019 pre-pandemic levels.
First-time buyer activity exhibited signs of recovery, with mortgage completions in 2024 just 5% below 2019 levels. Gardner highlighted that this was a strong performance given the current interest rate environment, with five-year fixed mortgage rates for borrowers with a 25% deposit at approximately 4.4%, compared to around 2% in 2019.
Cash transactions were particularly resilient, exceeding pre-pandemic levels by 2%. Meanwhile, buy-to-let mortgage activity has gradually increased over the past year, supported by rising rental prices and lower mortgage rates.
Gardner, however, noted that activity remains subdued compared to historical norms. He also pointed out that some cash purchases are made by landlords, with this segment of the market appearing more stable.
Looking ahead, industry experts believe the upcoming stamp duty changes in April will cause fluctuations in transaction volumes.
“The changes to stamp duty at the start of April are likely to generate volatility in transactions in the near term, as buyers bring forward their purchases to avoid the additional tax,” said Gardner, who predicted a surge in transactions in March, followed by a slowdown in subsequent months, similar to patterns seen after previous tax adjustments.
“With the upcoming changes to stamp duty, we could see the monthly uptick in house prices continue,” added Karen Noye (pictured centre), mortgage expert at Quilter.
She noted that some buyers are rushing to complete transactions before the tax threshold lowers and warned that those cutting it close to the deadline risk overpaying. She also expressed concern over the added financial burden on first-time buyers.
“The government’s decision not to extend the increase to the stamp duty threshold will pile even more pressure on prospective first-time buyers in particular,” she said, highlighting that some could face tax bills of up to £5,000.
Noye suggested that further cuts to the Bank of England base rate could support housing demand, but limited supply may keep prices elevated.
For Mark Harris (pictured right), chief executive of mortgage broker SPF Private Clients, the property market remains unpredictable, with lenders adjusting their rates in response to inflation and interest rate expectations.
“With some lenders pulling their cheapest fixed rates, at the same time as others are launching them, the market is very jittery, which makes it difficult to plan ahead,” he said.
Harris noted that a recent unexpected rise in inflation has reduced the likelihood of further interest rate cuts in the near term.
“It wasn’t so long ago that there was talk of five potential interest rate cuts this year, but that is looking increasingly unlikely,” he said. “Locking into a rate makes sense and gives peace of mind when there is so much uncertainty, and if rates are cheaper by the time you come to take out your mortgage, it should be possible to switch to a cheaper deal at that time.”
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