UK Home Costs Stagnate at Begin of 2025, Nationwide Says

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(Bloomberg) — UK house prices barely rose at the start of the year, according to Nationwide Building Society, suggesting the property market could finally be succumbing to high borrowing costs.

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The average price of a home increased 0.1% to £268,213 ($333,390) in January, the slowest pace since October and less than the 0.3% rise economists were expecting. It followed a 0.7% gain in December and left prices 4.1% higher than a year earlier, the mortgage lender said in a report published Friday. 

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The figures are a warning that affordability remains stretched for prospective homebuyers amid rising economic uncertainty, a resurgence in inflation and mounting fears of job losses. Mortgage holders are around £500 worse off, on average, as a result of rising borrowing costs in recent months.

“Higher borrowing costs are weighing on buyers but demand still feels artificially strong,” said Tom Bill, head of UK residential research at Knight Frank. “Until rate cut expectations improve and mortgages starting with a 3 re-appear, we expect further downwards pressure on house prices.”

The housing market has unusual shown resilience amid recent political and economic uncertainty. Official show house prices grew at the fastest pace in two years in the 12 months through November. 

But demand is currently supported by buyers benefitting from lower mortgage rates that predate Labour’s inflationary budget, as well as prospective owners trying to close deals to benefit from a property tax relief set to end in March  — mortgage approvals rose in December. Some economists warn housing demand could slow down in the second half of the year when these forces fade out.

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After cutting interest rates twice last year, the BOE is expected to only provide a limited boost to homebuyers in the coming months. Policymaker are set to reinforce their cautious approach when they meet on Feb. 6 as they remain wary of sticky inflation threats.

House prices remain elevated compared to average earnings, Nationwide said. A prospective first-time buyer on the average income would have to spend almost 36% of take-home pay to cover mortgage costs, above the long-run average of under a third. 

Households are also facing renewed cost-of-living pressures from rising food and energy prices, as well as the risk of slower pay growth after Labour increased employment costs. That’s making it harder for first-time buyers to save for a deposit.

“While there has been a modest improvement over the last year, affordability remains stretched by historic standards,” said Robert Gardner, chief economist at Nationwide. 

(Adds comment, charts, affordability details)

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