The mortgage lender’s house price index showed, over the last year, house prices had fallen by 0.2% but this was a smaller decline than the 1.8% annual fall recorded in December.
This means the average property in the UK is now £257,656, according to Nationwide’s index.
Robert Gardner, chief economist for Nationwide said the improvement in annual house price growth showed the strongest outturn since January 2023.
And he cited falling mortgage rates as one of the main reasons for this. “There have been some encouraging signs for potential buyers recently with mortgage rates continuing to trend down,” he said.
“This follows a shift in view amongst investors around the future path of Bank Rate, with investors becoming more optimistic that the Bank of England will lower rates in the years ahead.
“These shifts are important as this led to a decline in the longer-term interest rates (swap rates) that underpin mortgage pricing around the turn of the year.”
However, he warned the interest rate outlook remained ‘highly uncertain’ and mortgage rates would need to dip to 3% to bring back a decent level of affordability to buyers.
The Bank of England’s Monetary Policy Committee, which decides on the level of interest rates, is due to meet tomorrow (1 February) to decide on its next move.
It is forecast the committee will hold the rate, again, at 5.25%.
Karen Noye, mortgage expert at Quilter, said: “The Bank’s ‘higher for longer’ stance has resulted in a tricky landscape for prospective buyers, and it is unlikely to lower rates for some time yet – potentially not until the second half of 2024 unless inflation lowers rapidly.”
She added: “The precarious nature of the economy had left many prospective buyers in ‘wait and see’ mode, reluctant to buy a new home in the hopes of securing lower rates further down the line, but we are now seeing tentative signs that people are making a return to the market.
“Should mortgage rates continue to fall then more may be lured back to the market sooner which would help to buoy prices further.
“For those who are looking to purchase a new property in 2024, seeking professional mortgage advice will be vital. A mortgage adviser can help you navigate what remains a relatively unpredictable market and will ensure you make the best possible decisions for your personal circumstances and goals.”
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