(Bloomberg) -- UK house prices grew year-on-year for the first time in 13 months as lower mortgage rates entice more buyers back into the property market.

Nationwide Building Society said the average price of a home rose to £260,420 ($328,920) in February, up 0.7% from January. The monthly increase was bigger than the 0.3% rise economists forecast and left values 1.2% higher than a year earlier, the first annual growth since January 2023.

The figures suggest that the housing market gained momentum this month, rebounding from its stagnation last year after high interest rates stretched affordability for buyers. 

Leading indicators, such as mortgage approvals and surveys of buyer demand, indicate that a rebound in activity is gathering pace. However, the fall in mortgage rates since last summer’s highs has stalled in recent weeks, potentially limiting a bounce back in activity.

The average two-year fixed mortgage rate has risen to 5.75% after slipping to a low of 5.55% in late January, according to Moneyfacts.

“The decline in borrowing costs around the turn of the year appears to have prompted an uptick in the housing market,” said Robert Gardner, Nationwide’s chief economist. “Nevertheless, near-term prospects remain highly uncertain, in part due to ongoing uncertainty about the future path of interest rates.”

Nationwide noted that prices are still 3% below the record highs hit in the summer of 2022. In addition to mortgage rates creeping higher, Gardner said that it will take some time for household finances to recover after being squeezed by inflation in recent years.

“Borrowing costs remain well below the highs recorded last summer but, if the recent upward trend is sustained, it threatens to restrain the pace of any housing market recovery,” he said.

Mortgage rates have edged up in recent weeks after investors shifted back bets on when the Bank of England will begin cutting interest rates. 

While markets once thought a May reduction by the BOE was in play, they now expect the first cut will arrive in August, followed by at least one more by the end of the year. The continued tightness of the UK labor market and stickiness in services inflation have dampened expectations of an early move by the BOE.

Tom Bill, head of UK residential research at Knight Frank, said that banks should “eventually lower rates this year as inflation comes under control,” predicting a 3% rise in house prices this year.

“Buyers feel confident that the only way for the base rate is down, which has seen demand and house prices pick up in recent months,” he said.

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