In October, UK house prices saw an unexpected rise of 0.9%, when accounting for seasonal fluctuations. This improvement contributed to a more favorable annual house price change, which now stands at a decrease of 3.3%. This is a notable improvement from the 5.3% annual drop recorded just a month earlier. Despite these recent positive signs, the Nationwide report highlights that housing market activity continues to exhibit signs of weakness.
One concerning aspect is the low number of mortgages approved for house purchases in September. Only 43,300 mortgages were given the green light, a figure that lags significantly behind the monthly average prevalent in 2019, with a shortfall of around 30%. These numbers reveal the ongoing challenges the UK housing market is facing, despite the recent uptick in house prices.
The increase in house prices in October comes as a welcome surprise for many, suggesting some resilience in the market. However, the Nationwide insists on a cautious interpretation, emphasizing that the housing market still grapples with significant weaknesses. The future trajectory of house prices and market activity remains uncertain, particularly in the context of broader economic conditions and government policies.
Robert Gardner, the Nationwide’s chief economist, offers insights into the current state of the housing market. He notes that the recent rise in house prices shouldn’t come as a surprise, considering that affordability remains a significant challenge for prospective homebuyers. While market interest rates, which play a crucial role in mortgage pricing, have moderated somewhat, they still remain notably higher than the record lows observed in 2021.
The increase in house prices in October can be attributed, at least in part, to the limited supply of available properties on the market. This scarcity in supply is counteracting the potential downward pressure on prices that might result from forced selling. The labor market is displaying stability, and mortgage arrears remain at historically low levels. This combined with robust labor market conditions suggests that there is no significant distress selling affecting house prices.
Looking ahead, it’s likely that housing market activity and house prices will continue to exhibit restraint in the coming quarters. Despite some signs that cost-of-living pressures are easing, including inflation rates falling below the rate of average earnings growth, consumer confidence remains weak. Surveyors also report subdued levels of new buyer inquiries, pointing to ongoing challenges in the housing market.
Bank Rate is not anticipated to see significant declines in the coming years, which means that borrowing costs are unlikely to revisit the historic lows observed in the aftermath of the pandemic. Rather, the expectation is that a combination of steady income growth, along with slightly lower house prices and mortgage rates, will contribute to gradual improvements in affordability over time. However, this is likely to be accompanied by relatively subdued housing market activity in the interim.
This sentiment is shared by other analysts who share the view that the current conditions do not indicate a full-fledged recovery for the housing market.
Susannah Street, head of money and markets at business consultancy Hargreaves Lansdown, points out that the impact of high interest rates is becoming evident in the UK. Many potential buyers are hesitant to make a move due to the lack of affordable mortgage deals, resulting in a reduced number of houses on the market, which, in turn, has driven up house prices in October.
While the data from Nationwide might initially suggest an improved housing market, it primarily reflects homeowners choosing to stay in place rather than facing significantly higher borrowing costs. The market is expected to remain sluggish as long as interest rates remain elevated or if there is a more pronounced decrease in house prices, potentially making them more accessible to first-time buyers.
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