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UK house prices rose again in May despite a rise in mortgage rates that slowed the recovery, according to data released on Friday.
Lender Nationwide said house prices rose 0.4 per cent between April and May, after two consecutive months of decline, bringing the annual rate of growth to 1.3 per cent.
Robert Gardner, chief economist at Nationwide, said the market was “showing signs of resilience” as stronger real wage growth boosted consumer confidence – despite a recent rise in quoted mortgage rates as hopes of an imminent rate cut by the Bank of England faded.
However, separate data released by the BoE on Friday suggested consumers were treading cautiously, with mortgage approvals falling slightly in April, consumer credit falling sharply and households depositing a record £11.7bn into tax-free ISAs before annual deadline.
Analysts said the drop in consumer lending, from £1.4bn in March to £0.7bn in April, was partly the result of bad weather putting off buyers and potentially deterring house hunters from looking at properties.
Rob Wood, chief UK economist at consultancy Pantheon Macroeconomics, said consumers were already putting enough of their income aside to rebuild savings and would soon be “willing to spend more”. He added that higher mortgage rates “slowed down the housing market, but didn’t derail it.”
Investors are now betting that Britain’s central bank will cut interest rates just once in 2024 as inflation proved firmer than expected, falling short of forecasts to 2.3 percent last month. The reference interest rate of the BoE is at the highest level in 16 years at 5.25 percent.
The interest rate quoted on a typical two-year fixed-rate mortgage fell to 4.73 percent in January but has rebounded to 5 percent in recent weeks, limiting room for a housing market recovery.
BoE data on Friday suggested this rise in quoted mortgage rates has slowed the housing market’s recovery.
The central bank reported 61,100 net home mortgage loan approvals in April, down slightly from March’s 61,263, indicating that the recovery in activity that began last fall has stalled.
Net mortgage lending rose from £0.5bn in March to £2.4bn in April, the BoE said, but analysts noted that this would be the result of mortgages approved earlier in the year, when rates were lower.
The BoE said the “effective” interest rate – the rate actually paid on new mortgages – was still marginally higher in April at 4.74 per cent.
Andrew Wishart, an analyst at consultancy Capital Economics, said the big picture remains a stagnant market that is unlikely to regain momentum until the BoE starts cutting interest rates.
“Retrospectively, house prices have been flat for a year and a half, with a slight increase in May leaving them at January 2023 levels,” he said.
Wishart added that prices could fall “modestly” in the next few months, given signs that more homes are coming up for sale and mortgage rates are still high.
Gardner said the general election in July was unlikely to prevent a price recovery given Nationwide’s analysis of house price movements before and after previous polls.
“The last general election does not appear to have caused house prices to fluctuate or result in significant change. . . Broader economic trends appear to dominate any immediate effects related to the election,” he said, adding that it was less clear whether this could affect activity.
The number of mortgage loan approvals slowed sharply in the run-up to Labour’s landslide election victory in 1997, as well as a pandemic-related slump in the immediate aftermath of the 2019 election, which the Conservatives won.