House prices up in October despite 'extremely weak' activity: Nationwide

This morning's report from Nationwide has revealed a glimmer of light at the end of the tunnel for the UK property market. According to the data, average house prices rose from £257,808 in September to £259,423 in October. However, due to stretched affordability and low levels of activity, they remain down 3.3% on this time last year.

Robert Gardner, Nationwide's Chief Economist, said: “October saw a 0.9% rise in UK house prices, after taking account of seasonal effects. This resulted in an improvement in the annual rate of house price growth to -3.3%, from -5.3% in September.

“Nevertheless, housing market activity has remained extremely weak, with just 43,300 mortgages approved for house purchase in September, around 30% below the monthly average prevailing in 2019.

“This is not surprising as affordability remains stretched. Market interest rates, which underpin mortgage pricing, have moderated somewhat but they are still well above the lows prevailing in 2021.

“The uptick in house prices in October most likely reflects the fact that the supply of properties on the market is constrained. There is little sign of forced selling, which would exert downward pressure on prices, as labour market conditions are solid and mortgage arrears are at historically low levels.

“Activity and house prices are likely to remain subdued in the coming quarters. Despite signs that cost-of-living pressures are easing, with the rate of inflation now running below the rate of average earnings growth, consumer confidence remains weak and surveyors continue to report subdued levels of new buyer enquiries.

Bank rate

“With Bank Rate not expected to decline significantly in the years ahead, borrowing costs are unlikely to return to the historic lows seen in the aftermath of the pandemic.

“Instead, it appears likely that a combination of solid income growth, together with modestly lower house prices and mortgage rates, will gradually improve affordability over time, with housing market activity remaining fairly subdued in the interim.”

Industry reaction

Simon Gerrard, Managing Director of Martyn Gerrard Estate Agents, said: “House price growth returning to positive figures is a hugely promising sign for the property market.

"Whilst prices are still below where they were a year ago, The Bank of England’s recent decision to freeze the interest rate has clearly restored a good amount of buyer confidence, and with strong wage growth and inflation coming under control, there is a positive outlook for both the housing market and the wider economy.

“Nonetheless, whilst activity is clearly picking up again, the key factor in returning to strong long-term growth will be the Bank of England lowering the base interest rate, as there will be a lot of people who paused their property search after the interest rate freeze, and who are now waiting to see what the Bank of England does next.

"If we begin to see downward pressure on the base rate, this could well fire the starting pistol on a flurry of house buying activity towards the end of the year, provided lenders respond in the right way and reduce mortgage rates.

“We’ll have to wait and see what the Bank of England announces this week, but the view from the ground is that interest in buying a home remains high, and so even a small reduction to the base rate of a quarter of a per cent would likely be enough to restore a lot of confidence to buyers and unleash this pent-up demand.

"As a result, house prices will likely return to growth quite quickly, as after all, we are still facing a property market with demand that vastly outstrips supply."

James Briggs, Head of Intermediary Sales at Together said: “A slight rise in house prices may not be enough to ward off predictions that house prices won’t recover until 20251, largely due to higher borrowing costs causing a slowdown in house sales.

“Looking ahead to the next year, we expect to see the overall housing market heavily influenced by the exit of more amateur buy-to-let landlords, as they consider whether lower yields against higher mortgage costs are worth the time, upkeep, and potential repair costs on a reduced margin.

“Whilst many of these properties may be snapped up by limited companies and professional or long-term BTL landlords, this trend may present an opening for first-time buyers, as the residential side of BTL is mainly made up of smaller, more affordable properties.

“Considering the expectation that the Chancellor could announce more support for first-time buyers in his Autumn Statement, the next couple of years could look more optimistic than initially thought for aspiring homeowners. For those interested in taking their first steps onto the property ladder, it’s worth speaking to a mortgage expert who can assess your situation.”

Tom Bill, Head of UK Residential Research at Knight Frank, said: “Sentiment in the UK housing market is weak but unlike the early months of Covid or the period following the mini-Budget, there is no single cause.

"There is financial pain from higher mortgage rates, hesitancy as the Bank of England struggles to contain inflation, and uncertainty as a general election looms and conflict persists in the Middle East. It means the seasonal bounce in activity didn’t happen this autumn, although price falls have been kept in check by weak supply. We expect UK prices to fall by 7% this year and 4% next year as inflation comes under control and mortgage rates stabilise.”