The latest data from Nationwide reveals another positive month for the UK housing market. The average house price increase was the strongest growth in a year. The Nationwide housing index reported a 0.7% increase in January over the previous month’s reported 1.8% decrease for December. The average house price rose to £257,656, and while there was a month-to-month increase, there was a 0.2% decline from January 2023. 

The latest data has led to a more optimistic outlook from Nationwide.

There have been many points of data that have led to optimistic outlooks for the housing market and the economy overall. Lenders have created a competitive lending market which has led to lower interest rates despite the Bank of England’s standard base interest rate being held steady for the last three consecutive meetings, which means borrowing is cheaper than expected.

In another positive movement for the economy, inflation has drastically changed in the past year. At the start of 2023, the inflation rate was double digits, and it is now at 4.0%. However, the current inflation rate is 0.1% higher than the 3.9% inflation rate reported for November. 

No matter the slight increase, inflation has dropped closer to the Bank’s target rate of 2.0%. Perhaps it confirms the hope the current Bank rate of 5.25% is indeed the peak rate to bring inflation under control.

Despite the Bank’s base rate remaining steady since September 2023, lenders have dropped their rate offerings with some near or below the base rate. Home buyers have returned to the market due to lower rates, and the housing market has experienced growth. These are all good signs for the economy and much sooner in the year than most experts forecasted.

Thursday of this week, 1 February, the Bank of England’s Monetary Policy Committee (MPC) will meet, and their decision could offer a boost to the current optimism that has developed. The expectation is for the rate to hold steady for the fourth consecutive meeting, but the vote is not likely to be unanimous. Some members are likely to vote for an increase to the base rate.

During the last MPC meeting, which was held in December, there were three members that voted for an increase. A hike to the base rate would hasten the movement of inflation toward the target rate, seen as a better choice that lingering steady or slowly dropping toward target throughout the year. A faster decline toward target would offer relief sooner to the economy, to consumers, and bring about a more likely scenario in which the MPC would cut the rate.

The boost to the housing market is, according to experts, due to the lower mortgage rates and an increase in the supply of properties. Growth in the market is considered strong and healthy for the economy, but house prices are viewed as in need of correction. 

Lower house prices would bring affordability to the many that have been shut out of the market. The downside of bringing house prices back from the pandemic lifestyle boosted prices is the loss of equity for homeowners. 

As house prices fall, so can property values. Homeowners with little equity built into their property would be in danger of falling into negative equity, where the debt on the property is greater than the value of the property. While in negative equity, a homeowner cannot remortgage and they would be at the mercy of their lender’s standard variable rate (SVR), which usually has a higher rate than what could be found with a remortgage. 

Experts hope to keep homeowners out of negative equity for many of those transitioned to their lender’s SVR will have affordability issues and fall into arrears.

Currently there are signs pointing to a year of growth and correction and perhaps less of a financial struggle for consumers. However, it is not going to be one of rapid growth or quick corrections. The economic journey of 2024 will be slow, and struggles will remain, but with a more optimistic outlook.