The UK property market continued its steady growth in February, with house prices rising 3.9% year-on-year, according to the latest figures from Nationwide. This marks the sixth consecutive month of growth, with prices up 0.4% compared to January, despite ongoing affordability challenges.
First-time buyers and landlords hold steady
Robert Gardner, Nationwide’s Chief Economist, highlighted the market’s durability in the face of economic uncertainty. “Housing market activity has also remained resilient in recent months, despite ongoing affordability challenges,” he said.
First-time buyers have played a key role in this stability. Mortgage completions in this segment were just 5% below 2019 levels, a strong showing given that five-year fixed mortgage rates now hover around 4.4%—a significant jump from the 2% rates seen in 2019. Cash purchases, often favoured by landlords, have also remained robust, with activity sitting 2% above pre-pandemic levels.
Buy-to-let investors have been slowly returning to the market, encouraged by rising rental yields and easing mortgage rates. However, Gardner noted that buy-to-let activity “remains quite subdued compared to historic levels.” He added that “higher transaction costs, as a result of recent and upcoming stamp duty changes and uncertainty relating to the regulatory environment, also appear to be having a cooling effect on this segment of the market.”
Stamp duty changes drive short-term activity
A rush to beat the looming stamp duty increase at the start of April is driving a flurry of transactions. “The changes to stamp duty at the start of April are likely to generate volatility in transactions in the near term,” Gardner explained. “This will likely lead to a jump in transactions in March, and a corresponding period of weakness in the following months, as occurred in the wake of previous stamp duty changes.”
Nathan Emerson, CEO of Propertymark, also warned that while market momentum remains positive, inflation could be a lurking factor. “With inflation now sitting at 3%, which is above the Bank of England’s initially targeted level, we could see it becoming potentially more challenging for people to approach the buying and selling process should this translate into higher interest rates as a result.”
Measured growth benefits landlords
Despite external pressures, experts remain optimistic about the market’s trajectory. Verona Frankish, CEO of Yopa, noted that “the UK property market has begun the year on the front foot and we’re now seeing the rate of house price growth start to accelerate, as more buyers push on with their plans to purchase following a brief respite over the Christmas period.”
She acknowledged that some of the recent market activity is linked to the impending stamp duty deadline but believes momentum will persist beyond April. “Whilst there may be a momentary market correction, we expect momentum to continue building beyond 1st April.”
For landlords, a steady and measured pace of price growth could be beneficial. Marc von Grundherr, Director of Benham and Reeves, observed, “House prices may not be climbing at the same rate as previous market peaks, but some may argue that this more measured rate of growth is far healthier for the market, particularly when you consider that first-time buyer activity is on the up, despite the fact that this market segment faces the toughest task with respect to affordability.”
