UK house prices edge higher in October

UK house prices rose modestly in October to £272,226, as the housing market was hit with elevated borrowing costs and subdued consumer sentiment, according to figures by Nationwide Building Society.

The lender said prices increased by 0.3% month on month, following a 0.5% gain in September. On an annual basis, prices were 2.4% higher than a year earlier, up slightly from September’s 2.2% growth.

The figures came in stronger than expected. Economists polled by Reuters had forecast no change in prices on the month and a 2.3% annual increase.

Robert Gardner, Nationwide’s chief economist, said: “October saw a slight rise in the rate of annual house price growth to 2.4%, from 2.2% in September. Prices increased by 0.3% month on month, after taking account of seasonal effects.”

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He added that “the housing market has remained broadly stable in recent months, with house prices rising at a modest pace and the number of mortgages approved for house purchase maintained at similar levels to those prevailing before the pandemic struck.”

“Against a backdrop of subdued consumer confidence and signs of weakening in the labour market, this performance indicates resilience, especially since mortgage rates are more than double the level they were before COVID struck and house prices are close to all-time highs,” Gardner said.

Looking ahead, Gardner suggested some easing in borrowing costs could support the market. “Housing affordability is likely to improve modestly if income growth continues to outpace house price growth as we expect.

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"Borrowing costs are also likely to moderate a little further if bank rate is lowered again in the coming quarters,” he said. “This should support buyer demand, especially since household balance sheets are strong – indeed, in aggregate the ratio of household debt to disposable income is at its lowest for two decades.”

Nathan Emerson, chief executive of Propertymark, said the market had experienced “challenges and achievements in almost equal measure” over the course of the year.

“It is positive for those on the housing ladder to see them accumulate more equity. However, the flip side is that it remains ever more demanding for first-time buyers to attain a foothold on their housing journey,” Emerson said.

He added that “three base rate dips have helped increase consumer affordability; however, we still have a rate of inflation that is near double what the Bank of England is hoping for.”

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Emerson also noted that “stamp cuty threshold changes disrupting sales trends for those in England and Northern Ireland earlier this year” had affected the market, while “the autumn budget just around the corner may influence the smooth flow of property transactions, with many people holding out to see what changes may potentially be announced".

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Alice Haine, personal finance expert at Bestinvest by Evelyn Partners, said: “Buyers have been gradually adjusting to the end of the stamp duty tax break in the spring, with mortgage approvals edging up slightly in September. But fresh uncertainty around potential property tax reforms appears to be having a dampening effect on market activity."

“While the run-up to Christmas typically delivers a seasonal slowdown in activity, this year the effect appears to have kicked in earlier, as buyers and sellers adopt a ‘wait and see’ approach ahead of the chancellor’s fiscal statement.”

The autumn budget is expected to outline several changes to the property tax landscape. Among the proposals reportedly under consideration is a "mansion tax" on homes valued over £2m, council tax reform, and the introduction of capital gains tax on the sale of high-value properties. A major shift could also involve replacing stamp duty with an annual property tax.

"With reports that income tax rises may be introduced, something that also impacts rental income, landlords may be feeling particularly vulnerable," Haine explained. "One idea floated by the Resolution Foundation, and reportedly under consideration by the government, is a simultaneous 2 pence cut to NI and 2 pence increase in income tax.

"Such a move could disproportionately affect landlords and pensioners, who are largely exempt from NI – allowing the chancellor to argue that the change would have minimal impact on working people."

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