According to the mortgage provider Nationwide, UK house prices experienced a surprising increase last month. In the span between September and October, house prices surged by 0.9%. Not only was this the first monthly rise we’ve seen since April, but it was also the most significant since March 2022. This increase took many by surprise, especially given that a group of economists polled by Reuters had previously forecasted a 0.4% decline.
However, a broader perspective reveals that prices are still 3.3% lower than they were in October of the previous year. This dip is still an improvement from the 5.3% yearly decrease recorded in September 2023.
What’s Behind the Rise?
The main driver behind this unexpected rise, according to Robert Gardner, Nationwide’s chief economist, is a “constrained” supply of properties available in the market. Thankfully, the market hasn’t witnessed any signs of forced selling, which can be attributed to the stability in the job market and historically low mortgage arrears.
House prices don’t just affect homeowners and investors; they have a ripple effect on the wider economy. When house prices increase, people generally feel more confident in spending, especially on items related to homes, like furniture and carpets. However, the past year has seen a downward trend, indicating the tug-of-war between various economic factors.
On one hand, strong wage growth and a notable shortage of available properties have upheld prices. This scarcity has been so pronounced that the average housing stock per surveyor has plummeted to nearly record lows, as reported by the Royal Institution of Chartered Surveyors. On the other hand, increased mortgage payments over the last year have applied downward pressure on house prices.
The Bigger Picture on Prices
Nationwide reports that the average house price as of October stood at £259,423. This is a decrease from a peak of £273,751 recorded in August of the preceding year. Even though we witnessed a price increase in October, the housing market activity remains notably weak.
A significant reason for this slowdown in the housing market is the sharp increase in interest rates by the Bank of England. The rates jumped from a record low of 0.1% in November 2021 to a whopping 5.25% now, in efforts to control inflation.
Mortgage Matters
Recent data from the Bank of England unveiled that mortgage approvals in September plunged to their lowest since the beginning of the year. Furthermore, the average mortgage rate reached 5%, a figure not seen since the financial crisis of 2008-09.
Most experts anticipate a continued lull in the housing market due to high borrowing costs. Tom Bill from Knight Frank predicts a 7% drop in house prices this year, followed by a 4% decline next year as inflation stabilizes and mortgage rates plateau. Similarly, Imogen Pattison from Capital Economics forecasts an additional 5.5% drop in the coming months.