(Bloomberg) -- House prices in London rose for the first time in more than a year, a sign that its property market is beginning to shake off the impact of higher interest rates.
Average prices in the UK capital climbed 0.6% in June compared to a year ago to £523,000 ($672,130), the fastest growth since May 2023, the Office for National Statistics said Wednesday.
It showed London’s property market recovery gathering momentum after it suffered some of the sharpest declines in prices following the surge in mortgage rates. Economists are expecting the property market to make further gains after the Bank of England started to cut interest rates earlier this month.
It pushed up the average price in London to its highest in nine months, and was the second straight month-on-month increase. However, prices in the capital are still 3.5% below their peak almost two years ago.
Tom Bill, head of UK residential research at Knight Frank, said that August “may prove to be a turning point” for the property market after the BOE reduced rates from a 16-year high.
“The first rate cut in more than four years and lower-than-expected inflation numbers should boost demand this autumn and we expect average prices to rise by 3% in 2024,” he said.
The official data confirms the stronger picture coming out of industry indicators in recent months after an easing in mortgage rates. The official data usually lags gauges from Halifax and Nationwide Building Society, which have shown prices rising in July.
While mortgage rates remain much higher than before inflation took off, borrowing costs have come down again after creeping higher since the start of 2024. The average two-year fixed mortgage rate has edged down to 5.66%, down from around 6% earlier in the summer, according to Moneyfacts.
The ONS said that UK-wide prices were up 2.7% year-on-year, unchanged from May, and flat compared to the previous month.
“The outlook for mortgage rates should boost demand in the coming months,” said Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics. “We think the trend will gain further ground as mortgage rates fall and real incomes rise.”
Separate data showed that a fall in private rental price inflation stalled in July. Rents were up 8.6% across the UK compared to a year ago and 9.7% in London, both unchanged from the previous month.
--With assistance from Mark Evans.
©2024 Bloomberg L.P.
