According to a recent report from Nationwide, the UK housing market is doing well despite continued high interest rates. Home buyers are paying attention to the market and the average house price has grown by 0.4%. The April average of £261,962 grew to £264,249 in May with home buyers choosing to move ahead in their purchases without waiting for the expected cut to the standard base interest rate by the Bank of England’s Monetary Policy Committee (MPC). 

Andrew Harvey, a senior economist at Nationwide, remarked, “I think we have been a little surprised actually by the resilience in the market because those affordability pressures have been quite significant.”

In further surprising data from Nationwide on the resilience of the housing market and determination of hopeful home buyers, the average house price grew in the twelve months to May by 1.3%. In comparison, the twelve months to April resulted in a 0.6% gain.

Home buyers are not attracted to the market for the same reason as only months ago when lenders began to cut their mortgage rates in the hopes of an early spring cut to the base rate by the MPC. Those unexpected low rates have been disappearing with some lenders pulling them faster than others. According to Moneyfacts, the average five-year fixed rate mortgage, a popular choice for home buyers, is at 5.49%, having grown from the 5.4% average of the previous month. Those seeking a shorter term in the two-year fixed rate will face a larger increase as the current average is 5.92% up from 5.83% in April.

The activity in the market could be the usual increased attention from home buyers in the spring. It might be the higher supply of available properties to choose from in the housing market. It could be the optimism growing in consumers as there is now more talk of inflation reaching the target of 2.0% than there is talk of it being a longer journey to recovery for the economy.

The MPC is expected to reach their target goal of 2.0% for inflation very soon. Their meeting in May came before the month’s inflation report. The committee voted to keep the rate at 5.25%. The May inflation report was later released and while there had been a decline toward target, it was less than expected. Inflation fell from 3.2% to 2.3% and it had been hoped it would reach 2.1%. 

The next inflation report comes on 19 June, followed by the MPC meeting on the 20th. If the base rate does fall to target, or below, the MPC might offer a 0.25% cut to the rate. If the majority of the members do not vote for a cut, then the next opportunity would be during the 1 August meeting as there is not one scheduled for July.

The current standard base rate is at 5.25%, and while the first expected rate cut would be minimal, and if at 0.25% would take the rate to 5.0% it would make a considerable difference for not only buyers but also homeowners shopping for remortgages. The level at which lenders would cut their rates could offer exciting borrowing opportunities.

However, it should be noted that home buyers and homeowners do have attractive deals to discover now, which is likely why the housing market is doing well. Not all lenders have pulled their competitive deals from borrowers, and many are already choosing to gather the attention of borrowers before the MPC makes a cut to the base rate.

More reports on the housing market will be released soon, and while Nationwide data is important, it is only a reflection of their mortgage lending and does not include buy-to-let deals or cash purchases. If other reports also show strong resilience in the UK housing market it offers more optimism for the economy.