UK house price growth slows as higher rate expectations weigh on demand
Higher borrowing costs are continuing to curb activity in the UK housing market as buyers face growing pressure from mortgage pricing. Annual house price growth slows to 0.5% in October, the weakest pace since January 2024, while prices are flat from the previous month.
Highlights
- UK house prices rose 0.5% year-on-year in October, down from 0.8% in September and below the 0.6% Reuters poll forecast.
- House prices remained flat month-on-month after a 0.3% decline in September, signaling continued market softness but not another monthly drop.
- Expectations for Bank Rate hikes to 4% from 3.75%, coupled with mortgage approvals hitting their lowest since December 2023, point to further housing market weakness.
October data points to weaker buyer appetite
As reported by Reuters, citing Nationwide Building Society, house prices in October are 0.5% higher than a year earlier, down from 0.8% growth in September and below the 0.6% median forecast in a Reuters poll.On a monthly basis, prices are unchanged after a downwardly revised 0.3% fall in September. Economists had expected a further 0.1% decline, suggesting the market remains soft but avoids another monthly drop.
Nationwide Chief Economist Robert Gardner says geopolitical tensions remain high, with the conflict in the Middle East putting upward pressure on energy prices and fuelling inflation concerns. He adds that this is lifting financial market expectations for higher Bank Rate levels and that other indicators point to further weakness in house prices in the near term.
Mortgage and rate outlook adds pressure
Soon after the U.S.-Iran conflict breaks out at the end of February, financial markets abandon expectations for Bank of England rate cuts this year and begin pricing in rate increases instead. That shift pushes up the cost of mortgages, which in the UK typically come with fixed rates for two or five years.While the Bank of England keeps rates on hold so far, most economists now expect its first rate increase in three years next week, taking Bank Rate to 4% from 3.75%. Separate Bank of England data published on Thursday shows the number of mortgages approved for house purchases in September falls to its lowest level since December 2023.
Our earlier coverage of the Bank of England’s November rate outlook explained how persistent inflation and firmer UK economic data were pushing economists to anticipate a 25-basis-point increase in Bank Rate to 4.0%. We also noted that the recent energy price shock had not fully fed through to consumer prices yet, but policymakers were increasingly signaling readiness to tighten if inflation risks and market volatility persist.
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