UK house prices witnessed a significant monthly rise in October, marking the most substantial increase in over a year, as reported by Nationwide, the country’s largest building society. Despite this uptick, prices remain markedly lower than they were a year ago. The 0.9% monthly rise is attributed to the persistent shortage of available properties, causing increased demand within the housing market.
Nationwide’s chief economist, Robert Gardner, explained that the surge in prices is due to the limited supply of homes, leading to intensified competition among buyers. However, he noted that the overall activity in the housing market remains “extremely weak” as potential buyers face challenges posed by higher mortgage rates and stretched affordability.
On an annual basis, the average home price dropped by 3.3% in October, reaching £259,423, compared to £268,282 a year earlier. Although prices have declined, they still remain significantly higher than pre-Covid levels when the average cost of a UK home in October 2019 was £215,368.
Gardner acknowledged that borrowing costs are expected to stay relatively high compared to the past decade. Nevertheless, he expressed optimism, anticipating that solid income growth, coupled with modestly lower house prices and mortgage rates, will gradually improve affordability over time, leading to a more subdued housing market activity in the interim.
The ongoing surge in mortgage rates has added to the challenges faced by potential buyers. The Bank of England’s decision to raise interest rates 14 times in a row before stabilising at 5.25% in September aimed to tackle soaring inflation. However, this has led to increased borrowing costs, impacting homebuyers, individuals with tracker mortgages, and those seeking to remortgage. As of October 31, the average rate on a five-year fixed residential mortgage in the UK stood at 5.87%.
While Nationwide’s data reflects trends based on its own mortgage lending, it does not encompass cash buyers or buy-to-let deals. Cash buyers, accounting for over a third of housing sales according to official data, continue to play a significant role in the market.
Analysts have noted that although the current market challenges make it difficult for first-time buyers to secure mortgages, the correction in prices might be seen as a welcome development for them. However, the combination of higher borrowing costs and squeezed household incomes has forced some potential buyers to delay their plans, impacting overall market dynamics.
Kiki Garba
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