UK house price growth slows to 0.3% as budget uncertainty bites

UK house price growth has fallen month-on-month in October, according to figures from Nationwide Building Society (Jonathan Brady/PA) Jonathan Brady

UK house price growth slowed to 0.3% in October, down from 0.5% the previous month, as uncertainty over the government's budget and a weakening job market dampened buyer confidence. The average property value reached £272,226, representing an annual increase of 2.4%, according to Nationwide Building Society.

The slowdown came as mortgage rates ticked upward for the first time in eight months. The average two-year fixed rate rose to 4.98% in October, up from 4.96% in September, while five-year fixed rates climbed to 5.02% from 5.00%. This marked an abrupt halt to the steady decline in borrowing costs seen since early spring.

Budget uncertainty weighs on market

Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, said: "We think that some homebuyers are taking a wait-and-see approach to the budget, which is weighing slightly on sentiment in the market." He added that activity indicators holding up better than their survey-based signals suggest demand remains robust, noting: "So, all told, we expect a pick-up in activity once the budget is passed and buyers have more certainty over policy."

Simon Gammon, managing partner at Knight Frank Finance, explained the rate pause: "Both factors have unsettled policymakers and paused the steady decline in mortgage rates we've seen since early spring. [...] This is unlikely to mark the start of a sustained rise in borrowing costs, but rather a prolonged plateau while the outlook becomes clearer."

Expert outlook remains cautiously optimistic

Despite the current headwinds, Robert Gardner, chief economist at Nationwide, noted market resilience: "[...] 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 [...]" He expects housing affordability to improve modestly if income growth continues to outpace house price growth.

Rachel Springall, finance expert at Moneyfacts, offered perspective on recent improvements: "[...] Borrowers who locked into a two-year fixed-rate deal back in October 2023 would have been paying 6.47% in interest on average, compared to 4.98% now. That is a difference of £225 per month in repayments on a £250,000 mortgage over 25 years."

Sarah Coles at Hargreaves Lansdown said: "There's every chance that the market continues to stand its ground through the difficult winter months. Along with the fact that wages are rising faster than house prices, more than six months of falling mortgage rates will be helping convince buyers to take the plunge [...]"

Note: This article was created with Artificial Intelligence (AI).