In a surprising development, the UK housing market experienced a remarkable acceleration in November, with prices rising at the fastest rate in nearly two years. According to data from Nationwide Building Society, the annual growth rate of house prices jumped to 3.7% last month, up from 2.4% in October – the quickest pace since November 2022.
Defying Affordability Concerns
The surge in house prices comes despite growing concerns about affordability, as near-record high prices strain buyers’ budgets. Robert Gardner, Nationwide’s chief economist, expressed surprise at the acceleration, noting that “affordability remains stretched by historic standards, with house prices still high relative to average incomes and interest rates well above pre-Covid levels.”
Gardner pointed to several factors that may be supporting the housing market’s resilience, including:
- Solid labor market conditions
- Low unemployment levels
- Strong income gains, even after accounting for inflation
Mortgage Approvals Nearing Pre-Pandemic Levels
Another indicator of the housing market’s strength is the number of mortgage approvals, which has been steadily rising and approaching pre-pandemic levels despite higher interest rates. This suggests that buyer demand remains robust, even as borrowing costs have increased.
“Housing market activity has remained relatively resilient in recent months, with the number of mortgage approvals approaching the levels seen pre-pandemic, despite the higher interest rate environment.”
– Robert Gardner, Nationwide Chief Economist
Household Debt at Lowest Levels in Nearly Two Decades
One factor that may be supporting the housing market is the relatively low level of household debt. According to Gardner, household debt levels are at their lowest relative to household income since the mid-2000s. This suggests that many buyers may be in a stronger financial position to take on mortgage debt, even with higher interest rates.
Potential Impact of Budget Changes
While the recent acceleration in house prices is notable, some experts caution that the strength may not be sustained. Ruth Gregory, deputy chief UK economist at Capital Economics, cited the still-stretched ratio of prices to incomes as a potential headwind. However, she also noted that expected declines in mortgage interest rates could help support activity in the coming year.
The impact of recent changes to stamp duty announced in the Labour government’s first budget remains to be seen. The increased tax on second-home purchases, set to take effect in April, could lead to a short-term boost in transaction numbers as buyers rush to beat the deadline, followed by a temporary lull in activity.
Looking Ahead
As the UK housing market continues to navigate a complex landscape of affordability challenges, interest rate fluctuations, and policy changes, the surprising acceleration in November serves as a reminder of the market’s resilience. While the longevity of this growth remains uncertain, it is clear that demand for housing remains strong, supported by a solid labor market and low household debt levels.
In the coming months, close attention will be paid to key indicators such as mortgage approvals, price-to-income ratios, and the impact of stamp duty changes. As buyers and sellers alike adapt to the evolving market conditions, the UK housing sector is poised to remain a closely watched and dynamic part of the nation’s economic landscape.
