Annual growth hits its weakest rate since December as rising mortgage costs and economic uncertainty weigh on buyer demand
Annual house price growth in the UK slowed sharply to 0.8% in September, half the 1.6% recorded in August and the weakest rate since last December, according to Nationwide's latest House Price Index (HPI).
The average UK property price fell to £274,251, down from £275,465 in August, as geopolitical pressures and rising mortgage costs continued to dampen market confidence.
Robert Gardner, Nationwide's chief economist, said the slowdown reflected an uncertain economic backdrop. "Geopolitical tensions remain high, with the conflict in the Middle East exerting upward pressure on energy prices, fanning inflation concerns," he said. "This in turn has led to mounting financial market expectations of Bank Rate increases, which has maintained upward pressure on the market interest rates which underpin mortgage pricing."
Despite the subdued picture, Gardner struck a cautiously optimistic note, suggesting that activity should recover once confidence returns and energy price pressures ease, particularly if market interest rates fall back to pre-conflict levels.
The north-south divide deepens
The regional picture tells a story of two markets. Northern Ireland recorded the strongest annual house price growth in Q3 at 5.9%, followed by the North West at 3.9% and Scotland at 3.3%. At the other end of the scale, East Anglia was the weakest-performing region, with prices down 0.7% year-on-year. Eight of the 13 regions tracked by Nationwide recorded annual growth below 1%, with four posting small annual declines.
Rachel Springall, finance expert at Moneyfacts, said the north-south divide remained a persistent feature of the market. "While this could provide first-time buyers with an opportunity to accumulate a deposit for the more affordable parts of the country, it might not be logistically feasible, and housing supply issues remain alongside rising interest rates," she said.
Springall also highlighted the tangible cost of higher rates on household finances. A borrower taking out a £250,000 mortgage over 25 years would face repayments of around £1,600 a month based on the Moneyfacts average two-year fixed rate of 5.93% – approximately £160 more per month than at the average rate of 4.85% in early February, representing £1,920 in additional annual repayments.
Buyers in the driving seat, but caution prevails
Brokers say the data reflects a market in which buyers are negotiating rather than paying a premium. Mark Harris, chief executive of SPF Private Clients, said lenders were continuing to edge rates upward while the Bank of England maintained its steady approach. "Borrowers are taking nothing for granted though as the continued high cost of living strains affordability," he said. "Many are taking the sensible approach of locking into mortgage rates several months before they need them for peace of mind."
Springall stressed that the cost of living and buyer confidence were weighing on demand in ways that went beyond borrowing costs alone, warning that some prospective buyers might opt to remain in the private rental market, putting further upward pressure on rents. Buyers who could afford to act, she said, would find bargaining power on their side, but should seek advice on the overall cost of a mortgage rather than focusing on the headline rate alone.
Jason Tebb, president of OnTheMarket, said market resilience was still in evidence despite the softening numbers. "The dip in annual house price growth suggests price sensitivity as focused, needs-based buyers and sellers returned from holiday determined to get on with their moves before the end of the year," he said. The Bank of England's decision to hold interest rates had supported affordability, he added, but fears remained that rising energy bills could force the bank's hand this autumn.
Budget holds the key
With the autumn budget approaching, the industry's attention has shifted to whether the government will use fiscal policy to inject momentum into a flagging market. Tomer Aboody, founding director of MT Finance, said buyers and sellers were reluctant to move unless essential, citing the prospect of additional taxation. "Will the government respond with something similar [to stamp duty cuts] to get the property market moving?" he said. "It would be a step in the right direction and give the economy a real boost this autumn."
Harris pointed to the broader forces at play beyond rate movements. A dip in annual growth, he said, indicated buyers were not willing or able to pay over the odds, but were instead taking advantage of a market in their favour and negotiating accordingly. With the Bank of England's approach to interest rates holding for now and inflationary risks persisting, the budget may prove the more consequential near-term event for the housing market.
Tebb said all eyes would be on what the new prime minister Andy Burnham and chancellor John Healey had planned, expressing hope that measures for first-time buyers buying new-build homes would form part of a package that provided "much-needed impetus for the housing market, as well as the wider economy."
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