In January, the increase in UK house prices decelerated more than anticipated, primarily due to elevated mortgage rates, according to data released by the Nationwide Building Society. The rise in house prices was a modest 0.1 percent, following a 0.7 percent uptick in December, and fell short of economists’ expectation of a 0.3 percent increase. Annually, house prices grew by 4.1 percent, slowing from a 4.7 percent rise in December and missing the projected 4.3 percent climb.
Nationwide's Chief Economist, Robert Gardner, highlighted the housing market's resilience in the face of ongoing affordability challenges. However, he also noted that house prices still remain high compared to average earnings, posing a significant barrier for deposits. Gardner pointed out that it is not uncommon for a substantial portion of first-time buyers to seek financial assistance from friends and family to afford a deposit.
Despite these hurdles, there has been little notable change in overall home ownership rates in recent times. Gardner observed a slight increase in the number of people buying homes with a mortgage, though most homeowners have fully paid off their properties, largely due to demographic trends.
Alex Kerr, an economist with Capital Economics, remarked that higher mortgage rates have begun to affect house prices, but he believes this impact will be temporary. He predicts the Bank of England (BoE) will lower its key interest rate from 4.75 percent to 3.50 percent by early 2026, which should lead to a decrease in mortgage rates from 4.6 percent in December to around 4 percent next year. Kerr forecasts house prices will rise by a stronger-than-expected 3.5 percent by the fourth quarter of 2025 and 4.5 percent by the fourth quarter of 2026.
