UK house prices rise unexpectedly on scarcity of supply, says Nationwide

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UK house prices rose unexpectedly last month, supported by a lack of properties for sale, according to the mortgage provider Nationwide.

House prices increased 0.9 per cent between September and October, the first monthly rise since April and the largest since March 2022, according to data published on Tuesday. Economists polled by Reuters had forecast a 0.4 per cent fall.

House prices were still 3.3 per cent down from October last year, but that was smaller than the 5.3 per cent annual contraction registered in September 2023.

Robert Gardner, Nationwide’s chief economist, said the rise in October most probably reflected the “constrained” supply of properties on the market. But he added that there was little sign of forced selling, “as labour market conditions are solid and mortgage arrears are at historically low levels”.

House prices affect the wider economy because they shape consumer confidence and drive spending on home-related goods and services, such as furniture and carpeting. They have fluctuated in a downward trend over the past year, reflecting conflicting pressures.

Strong wage growth and a shortage of properties have supported prices, taking the average stock of housing per surveyor to near-record lows, according to the Royal Institution of Chartered Surveyors, a professional body. At the same time, higher mortgage payments have resulted in a slowdown in prices over the past 12 months.

Nationwide said the average house price was £259,423 in October, down from a peak of £273,751 registered in August last year. Despite the rise in prices in October, housing market activity “has remained extremely weak”, said Gardner.

Mortgage payments have risen following the Bank of England’s sharp increase in interest rates from an all-time low of 0.1 per cent in November 2021 to 5.25 per cent now in a push to tame inflation. Financial markets expect the central bank’s Monetary Policy Committee to keep rates unchanged at its meeting on Thursday.

Separate data published on Monday by the BoE showed that mortgage approvals in September fell to the lowest level since the start of this year, with the average mortgage rate reaching 5 per cent for the first time since the 2008-09 financial crisis.

Most property analysts expect further weaknesses in the months ahead on the back of elevated borrowing costs.

“Activity and house prices are likely to remain subdued in the coming quarters,” said Gardner, adding that consumer confidence remained weak and surveyors continued to report low levels of new buyer inquiries despite easing cost of living pressures.

Tom Bill, head of UK residential research at the estate agency Knight Frank, said he expected house prices to decline by 7 per cent this year and 4 per cent next year “as inflation comes under control and mortgage rates stabilise”.

Imogen Pattison, economist at the consultancy Capital Economics, forecast a further 5.5 per cent drop in house prices in the months ahead, taking the peak-to-trough fall to 10 per cent.

“While some buyers are able to accept higher mortgage payments, helping to prop up house prices, their number is dwindling as shown by the drop in mortgage approvals in September,” she said.