House prices increased again according to a major survey as the market continues to struggle with high borrowing costs.
There have been fewer house-buying transactions over the past year, Nationwide House Index found. Total deals fell nearly 15 per cent compared to the pre-pandemic period as higher costs saw deals involving mortgages decline further at almost 2 per cent.
Cash transactions rose 5 per cent on pre-pandemic levels.
The average home was worth £266,604 as property values rose by 0.2 per cent in June, the Nationwide house price index showed, following a rise of 0.4 per cent in May. House prices rose by 1.5 per cent in the year to June, up from 1.3 per cent from the 12 months to May.
Nationwide said the housing market was still being affected by the increase in mortgage rates, which started rising after the Bank of England began to raise interest rates in late 2021.
The house prices came as separate figures from the Bank of England revealed UK mortgage approvals fell for the second consecutive month in May.
Net mortgage approvals for house purchases fell to 60,000 in May from 60,800 in April and 61,086 in March, the Bank said. Approvals for remortgaging decreased slightly from 29,900 in April to 29,600 in May.
The figure was just higher than the 59,900 forecast by experts, but remains below 65,340 approvals registered in May 2019, ahead of the pandemic.
Sums borrowed through mortgages fell sharply to £1.2bn in May, from £2.2bn the month before, although this does not include people remortgaging with the same lender.
Prices as measured by Nationwide are around 3 per cent lower than their record high touched two years ago.
Robert Gardner, Nationwide’s chief economist, said: “Housing market activity has been broadly flat over the last year, with the total number of transactions down by around 15 per cent compared with 2019 levels.
“Transactions involving a mortgage are down even more (nearly 25 per cent), reflecting the impact of higher borrowing costs. By contrast, the volume of cash transactions is actually around 5 per cent above pre-pandemic levels.
“While earnings growth has been much stronger than house price growth in recent years, this hasn’t been enough to offset the impact of higher mortgage rates, which are still well above the record lows prevailing in 2021 in the wake of the pandemic.
The biggest price increases were in Northern Ireland, up 4.1 per cent compared with the second quarter of 2023. Across England prices were up 0.6 per cent over the year, while Wales and Scotland both saw a 1.4 per cent rise over the period.
Consumers increased their borrowing in May by the most in four months after a dip in April, Bank of England data showed, adding to signs of economic recovery. Borrowing grew by £1.5bn, the most since January and up from £790m in April.
The Bank of England’s interest rate setting committee meet again at the beginning of August with many experts believe it is ready to vote for a rate cut.
Sarah Coles, personal finance chief at Hargreaves Lansdown, said a rate cut may help house buyers rediscover ‘their mojo’. “This could come as early as August, although sticky services inflation and higher wages could mean we need to wait until the autumn.”
Lucian Cook, residential research head at Savills, said: “While house prices in June, and mortgage approvals in May, held firm, the effect of a general election on short term buyer commitment was more readily reflected in the number of new deals being agreed in the market.
“Transaction had been 8 per cent above the pre pandemic norm in the preceding three months but fell to 8 per cent below that benchmark in June; coming in at 82,00. Similarly, the number of properties being bought to the market came in slightly below the pre-pandemic average (-1 per cent, having been +6 per cent from March to May).”
With a cut in interest rates anticipated Savills expect activity levels will bounce back in coming months, “especially as the impact that an easing of mortgage rates could have will no longer be tempered by political uncertainty come the autumn,” he said.
Thomas Pugh, economist at audit and consulting firm RSM UK, said: “The rebound in consumer credit to £1.5bn in May, alongside the continued increase in consumer confidence, suggests the revival in households’ real disposable incomes and increasing consumer confidence to feed through into stronger domestic demand and economic growth as we move into the second half of the year.
“Indeed, rising consumer credit is consistent with the massive increase in retail sales and strength in the hotel sector seen in May. What’s more, the amount of cash households are holding increased by £5.3bn in May, well below the six month average of £7.1bn, suggesting that consumers are saving less.
“The housing market is still recovering gradually. Lower interest rates and rising incomes should mean this revival picks up steam in the summer, which will also help the broader economic recovery.”
