Property Price Growth: Positive Momentum as Prices Hold Steady
Economic Confidence Fuels Property Price Growth
The UK housing market is seeing an upswing, driven by improved conditions and property price growth from demand for energy-efficient homes. House prices have risen by 2.4% over the past year. Notably, Nationwide reports this as the fastest growth in nearly two years.
The recovery began in earnest after a turbulent period nearly two years ago. During Theresa May’s brief tenure, a mini-Budget negatively impacted the economy and housing market. The surge in interest rates during this time significantly dampened market activity. Current interest rates remain high compared to pre-crisis levels. However, they have stabilised and are likely to decline soon. This stabilisation should support ongoing growth in house prices.
Property Price Growth: The Rise of Energy-Efficient Properties
Shifting Buyer Priorities
The market has seen a significant shift in buyer preferences, with a growing emphasis on energy-efficient properties. Investors particularly seek assets with long-term value and resilience against future regulations, making this trend pronounced.
Landlords, in particular, are motivated by upcoming changes to energy efficiency standards for rental properties. The government aims to ensure that all rental homes meet a minimum Energy Performance Certificate (EPC) rating of C or higher. This regulatory push has intensified interest in properties that boast superior energy efficiency.
Homeowners are also increasingly considering EPC ratings when making purchasing decisions. Properties with high energy efficiency ratings are becoming more desirable, reflecting a broader trend towards sustainability.
Premiums and Discounts Based on EPC Ratings
Nationwide’s findings show that homes with an A or B EPC rating command a 2.8% premium. In contrast, properties with a D rating are the UK market average. Conversely, buyers discount properties with lower ratings, such as F or G, by up to 4.2% compared to D-rated homes.
Robert Gardner, Chief Economist at Nationwide, noted that energy efficiency’s impact on property values remains modest. However, it has increased since pre-pandemic levels. Properties with A or B ratings now attract a higher premium, while those with F or G ratings face more significant discounts. The value attached to energy efficiency is expected to evolve further, especially if government incentives are introduced to enhance energy efficiency and meet climate obligations.”
Potential for an Autumn Upswing in the Housing Market
Market Expectations and Bank of England’s Role
As the housing market continues to heat up, some analysts are anticipating an autumn surge in both market activity and property prices. The recent reduction in the Bank of England’s base rate from 5.25% to 5% is expected to bolster this trend, with mortgage rates anticipated to decrease accordingly.
Karen Noye, a mortgage expert at Quilter, noted, “With more predictable conditions, both buyers and sellers are likely to feel more confident about achieving their housing objectives, potentially leading to a price boost in the autumn. Although the direct effect of the base rate cut on tracker and standard variable rate mortgages will be limited, it may still contribute to an overall positive sentiment in the market.”
Tom Bill, Head of UK Residential Research at Knight Frank, added, “The housing market is currently in a stronger position than last summer, with inflation under control and lenders reducing their rates. As financial markets anticipate further rate cuts this year, declining mortgage rates this autumn should boost transactions and modest price growth.”
Nationwide’s own outlook suggests that, assuming steady economic recovery, housing market activity should strengthen gradually. This is due to slightly lower interest rates and earnings growth. Consequently, these factors are making homes more affordable.
Property Price Growth: Conclusion
Overall, the UK housing market is demonstrating resilience and growth potential. Energy efficiency is becoming more critical for buyers and investors. Moreover, improved conditions and stabilising interest rates boost market momentum. As autumn approaches, these factors could drive a further uptick in property values. Additionally, market activity may increase.
