UK house prices unexpectedly rose last month, with a 0.9 percent increase from September to October. This marks the first monthly rise since April and the most substantial uptick since March 2022, as per data published by mortgage provider Nationwide. Economists surveyed by Reuters had initially forecasted a 0.4 percent fall.
It’s worth noting that house prices are still 3.3 percent lower compared to October last year. However, this decline is less severe than the 5.3 percent annual contraction registered in September 2023.
This unexpected rise in October is largely attributed to the constrained supply of properties in the market. Yet, there’s little evidence of forced selling. Labour market conditions remain robust, and mortgage arrears are at historically low levels.
UK House Prices Influence Consumer Confidence
House prices play a vital role in shaping consumer confidence and influencing spending on home-related goods and services like furniture and carpeting. Over the past year, house prices have fluctuated due to conflicting pressures.
Strong wage growth and a shortage of properties have propped up prices. According to the Royal Institution of Chartered Surveyors, the average housing stock per surveyor is near a record low. Simultaneously, higher mortgage payments have caused a slowdown in prices in the last 12 months.
As of October, the average house price stands at £259,423, down from the peak of £273,751 recorded in August last year. Despite the rise in prices, housing market activity “has remained extremely weak,” say experts.
Rising UK House Prices and Mortgage Costs
Mortgage payments have increased following the Bank of England’s sharp interest rate hikes, from an all-time low of 0.1 percent in November 2021 to 5.25 percent now, aimed at curbing inflation. The Monetary Policy Committee is expected to maintain these rates during its upcoming meeting.
Recent data from the Bank of England reveals that mortgage approvals in September fell to the lowest level since the start of the year, with the average mortgage rate reaching 5 percent for the first time since the 2008-09 financial crisis.
Most property analysts anticipate further weakness in the months ahead due to elevated borrowing costs. They predict a 7 percent decline in house prices this year and a 4 percent drop next year as inflation is brought under control and mortgage rates stabilise.
Moreover, they forecast a further 5.5 percent decrease in house prices in the coming months, ultimately resulting in a peak-to-trough fall of 10 percent. While some buyers can accommodate higher mortgage payments, their numbers are dwindling, as demonstrated by the decrease in mortgage approvals in September.
