UK house prices experienced their slowest annual growth in more than two years during October, rising by just 0.5%. According to data from lender Nationwide, this deceleration reflects a market where higher mortgage rates are discouraging potential buyers. The average property price stood at £273,566 for the month, remaining flat compared to September and down from the 0.8% growth recorded in the year leading up to September.
The slowdown coincides with increased borrowing costs for consumers. For the first time in three years, the average cost of a five-year fixed-rate mortgage reached the 6% barrier. Financial information provider Moneyfacts reported the average stood at 5.99% on Thursday, while the two-year rate was closely behind at 5.97%. Although the Bank of England has kept its base rate unchanged at 3.75% since last December, volatility in the bond market has driven up swap rates, which directly influence fixed-rate mortgage pricing.
Expectations are mounting that the monetary policy committee will vote next week to increase the key interest rate to 4%, marking the first hike in three years. Robert Gardner, chief economist at Nationwide, noted that conflict in the Middle East has fueled inflation concerns, thereby raising expectations for higher rates. He warned that property prices are likely to fall further as surveyors report weak new buyer inquiries and a noticeable dip in consumer sentiment regarding both the general economy and personal financial outlooks.
Tom Bill, head of UK residential research at Knight Frank, stated that the impact of rising mortgage costs overshadows any support measures announced in this week's budget. Chancellor John Healey recently confirmed a new £4.7bn "Your First Home" scheme designed to assist first-time buyers without family financial backing. While Bill suggested the absence of major shocks might produce a modest relief bounce, he emphasized that asking prices must reflect the tougher financial landscape. Similarly, Rob Wood, chief UK economist at Pantheon Macroeconomics, indicated that while the government's new scheme could offer a modest boost, prices are expected to remain subdued throughout next year.
Sources: The Guardian Business.