UK house prices increased by just 0.5% annually in October, marking the slowest growth rate in over two years as rising mortgage costs continue to dampen buyer demand, according to Nationwide Building Society.
The average property price stood at £273,566 in October, remaining flat compared to the previous month and down from 0.8% growth recorded in September. The deceleration reflects the impact of higher borrowing costs on market activity.
Mortgage rates breach 6% threshold
The average cost of a five-year fixed-rate mortgage reached 6% this month for the first time in three years. According to financial information provider Moneyfacts, the average five-year rate stood at 5.99% on Thursday, with two-year rates close behind at 5.97%.
Despite the Bank of England holding its base rate at 3.75% since December, volatility in the bond market has pushed up swap rates, which directly influence fixed-rate mortgage pricing. Market expectations are growing that the monetary policy committee may vote to increase rates to 4% at next week’s meeting.
Market outlook remains subdued
Robert Gardner, chief economist at Nationwide, attributed some of the uncertainty to the Middle East conflict, which has intensified inflation concerns and expectations of higher interest rates. He noted that surveyors report weak new buyer enquiries and indicated property prices are likely to fall further.
Consumer sentiment declined noticeably in October, with households expressing reduced confidence about both the general economic outlook and their personal financial situations over the coming year.
Tom Bill, head of UK residential research at Knight Frank, said the impact of rising mortgage costs “eclipses any support measure announced in this week’s budget”, referring to the government’s £4.7bn Your First Home scheme designed to assist first-time buyers without family financial support.
The subdued market conditions align with recent data showing mortgage approvals declining for three consecutive months. Bill suggested that while the absence of major negative surprises from the chancellor may produce a modest relief bounce in coming months, asking prices will need to reflect the tougher financial landscape facing buyers.
Implications for investors and buyers
Rob Wood, chief UK economist at consultancy Pantheon Macroeconomics, said the government’s new first-time buyer scheme could provide a “modest boost” to the market, but prices are likely to remain subdued throughout next year.
The data suggests a continued cooling period for the UK property market, with affordability constraints limiting transaction volumes. Despite the challenging conditions, some analysts have noted underlying resilience in certain market segments, though overall momentum remains weak as borrowing costs remain elevated relative to recent years.
