House price rises in January were the highest for a year as mortgage rates continued to ease, the Halifax has said.
A slowdown in inflation and a buoyant jobs market also helped push property prices up, it added.
The UK’s biggest mortgage lender said a typical home now costs £291,029 on average, a 2.5% jump from January 2023.
The figures come as major housebuilder Barratt announced it would buy rival Redrow in a deal worth £2.5bn.
Housebuilders have struggled over the past couple of years as higher interest rates dented demand and construction costs rose.
But expectations of rates being cut this year, with inflation – the pace of price rises – slowing down, has led to “increased confidence” in the housing market, Halifax said.
However, it warned that while house prices had risen, interest rates still remained high compared with the historic lows seen in recent years, making it more expensive for prospective buyers to borrow.
The lender said first-time buyers faced average deposits of £53,414.
“It’s not surprising that almost two thirds of new buyers getting a foot on the ladder are now buying in joint names,” said Kim Kinnaird, director of Halifax Mortgages.
Ms Kinnaird said “affordability challenges are likely to remain” in the coming months and said further falls in house prices “should not be ruled out, against a backdrop of broader uncertainty in the economic environment”.
Halifax’s house price data is based on its own mortgage lending, which does not include buyers who purchase homes with cash, or buy-to-let deals. Cash buyers account for about a third of housing sales.
First-time buyers and homeowners looking to remortgage properties have faced higher borrowing costs in recent times. The Bank of England has held interest rates at a 16-year high of 5.25% since August 2023, in a bid to try to slow down the rapid pace of general price rises.
Alice Haine, personal finance analyst at Bestinvest, said with inflation expected to slow down in the coming months, the Bank could cut interest rate as soon as the summer.
“The improving outlook has resulted in better mortgage rates and affordability levels for first-time buyers and those looking to refinance,” she said.
A typical two-year fixed mortgage rate would charge 5.57% interest on Tuesday, while a five year deal would charge 5.22%, according to data from Moneyfacts.
This is down from a peak of 6.86% for a two-year deal in July last year, it said.
David Thomas, chief executive of Barratt said despite the “challenging” economic environment, demand for the company’s homes was “strong”.
His comments came after Britain’s biggest homebuilder Barratt announced it would buy Redrow in an all stock deal. The new combination, to be renamed “Barratt Redrow”, will aim to build more than 22,000 homes each year in the medium term.
“Since the start of January, we have seen early signs of improvement in both reservation rates and buyer sentiment, helped by expectations of lower interest rates and the introduction of more competitive mortgage rates,” Mr Thomas added.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said the decision behind the merger was due to both companies believing they would be “stronger together”, adding that they would have “much bigger clout” to take advantage on the need for more housing in the UK.
What happens if I miss a mortgage payment?
- If you miss two or more months’ repayments you are officially in arrears
- Your lender must then treat you fairly by considering any requests about changing how you pay, such as lower repayments for a short time
- They might also allow you to extend the term of the mortgage or let you pay just the interest for a certain period
- However, any arrangement will be reflected on your credit file, which could affect your ability to borrow money in the future