EuroWire, LONDON: UK house prices rose in January as easing borrowing costs and steady income growth improved affordability for many buyers, according to the Nationwide House Price Index. Nationwide said prices increased 0.3% in January from December on a seasonally adjusted basis, while annual growth picked up to 1.0%. The lender’s index put the average home price at £270,873, up from £271,068 in December, and described the shift as a modest early year firming after a softer finish to 2025.
Nationwide’s data showed December had recorded a 0.4% monthly fall and 0.6% annual growth, before January’s improvement. The building society said housing market activity dipped at the end of 2025 and pointed to uncertainty around potential property tax changes ahead of the Budget. It added that mortgage approvals for house purchase remained close to levels seen before the pandemic, even as transaction momentum cooled during the year-end period.
A key driver cited by Nationwide was improved affordability for typical first-time buyers. It said its main benchmark suggests that a buyer earning the average UK income and purchasing a typical first-time buyer property with a 20% deposit would face a monthly mortgage payment equal to 32% of take-home pay. That compares with a long-run average of 30% and a recent high of 38% recorded in 2023, reflecting how higher interest rates had strained purchasing power.
Nationwide said affordability improved across most of the UK over the past year, with Northern Ireland the exception after stronger house price growth there. It said London saw the largest improvement for a second year, reflecting relatively weak house price growth in 2025 alongside solid earnings growth and lower interest rates, but remained the least affordable region by a wide margin. It added that affordability pressures remained pronounced in the South of England, while several northern regions and Scotland were closer to long-run norms.
Mortgage demand signals mixed
Bank of England data showed softer mortgage approval volumes at the end of 2025, highlighting that improved affordability does not automatically translate into higher near-term borrowing. Net mortgage approvals for house purchase fell by 3,100 to 61,000 in December, while approvals for remortgaging rose by 1,600 to 38,400. The central bank said net borrowing of mortgage debt by individuals was unchanged from November at £4.6 billion, and the effective interest rate on newly drawn mortgages eased to 4.15% from 4.20%.
Other measures of the housing market also pointed to a firmer start to 2026, though they track different stages of the buying process. Rightmove said the average asking price of homes newly listed for sale rose 2.8% in January to £368,031, and was 0.5% higher than a year earlier. In contrast, Halifax reported that average house prices fell 0.6% in December to £297,755 and annual growth slowed to 0.3%, underscoring that late-2025 conditions were subdued across major indices.
Rates and pay underpin affordability
The interest rate backdrop has shifted since inflation peaked, lowering financing costs from earlier highs even as rates remain above pre-pandemic levels. The Bank of England cut Bank Rate by 0.25 percentage points to 3.75% in December, a move that can influence mortgage pricing over time. Income growth has also supported affordability metrics: official data showed annual growth in regular pay, excluding bonuses, was 4.6% in the three months to October 2025, while total pay, including bonuses, rose 4.7% over the same period.
Nationwide said the combination of earnings growth outpacing house price growth and a steady decline in mortgage rates helped underpin buyer demand in 2025, with first-time buyer activity continuing to edge higher as a share of house purchases. January’s price rise suggests the market entered 2026 with modest upward momentum, while regional affordability gaps remained wide and borrowing data from late 2025 pointed to a cautious pace of new purchase approvals.