UK house price growth cools as rate rises pinch

UK house price growth cooled in September as a rise in borrowing costs reduced affordability, even before the market was hit by a recent surge in mortgage rates, according to new data.

Average house prices fell 0.1 per cent between August and September, pushing down the annual rate of growth to 9.9 per cent, from 11.4 per cent in the previous month, the mortgage lender Halifax said on Friday.

The cost of a typical home fell to £293,835 last month, from a record high of £293,992 the previous month.

House prices have been flat since June, after rising more than £10,000 during the previous quarter, “suggesting the housing market may have already entered a more sustained period of slower growth”, said Kim Kinnaird, director at Halifax Mortgages.

The government’s tax-cutting “mini” Budget, announced on September 23, prompted many lenders to pull their mortgage products as expectations of further monetary tightening by the Bank of England grew on the back of the statement.

The mortgage provider Nationwide this week also reported that house prices had flatlined in September.

The mortgage approvals that the Halifax index are based on had an average rate of about 3.6 per cent in September, but the typical quoted rate has rocketed to 6 per cent since then, said Andrew Wishart, property economist at Capital Economics.

The rise in borrowing rates has pushed monthly payments on new 80 per cent loan-to-value mortgages up from £1,100 to £1,400, for average-priced properties. Last autumn, average monthly repayments were about £850.

Mortgage costs are set to increase further by next year as the Bank of England raises interest rates to 5.5 per cent, according to analysts. Rates currently stand at 2.25 per cent, their highest level since 2008.

Economists expect that this will result in many homeowners struggling with mortgage rates and a sharp contraction in house prices.

Wishart expects house prices to suffer a 12 per cent fall between now and mid-2024, representing a larger drop in real prices than during the financial crisis. This is due to higher mortgage rates, which are expected to drive up the cost of buying to its highest level as a share of income since 1990.

Martin Beck, chief economic adviser to the consultancy EY Item Club, expects policy rates to rise to under 4 per cent, less than market expectations. However, even at that level rates “would still significantly reduce demand for properties and decrease the size of loans that lenders can offer”, he noted.

Some analysts believe the housing market will remain robust despite the rising cost of borrowing. Kinnaird said the cut to stamp duty, a shortage in housing supply and a strong labour market would continue to support house prices.

However, he added: “The prospect of interest rates continuing to rise sharply amid the cost of living squeeze, plus the impact in recent weeks of higher mortgage borrowing costs on affordability, are likely to exert more significant downward pressure on house prices in the months ahead.”

Most UK regions reported annual house prices slowing to a single-digit rise, Halifax said, with the exception of Wales where growth remained strong at 14.8 per cent.

London still has the slowest annual rate among the UK nations and regions, with house prices rising by 8.1 per cent.