The United Kingdom experienced a significant slowdown in residential property price appreciation last month, with annual growth falling to 0.8% according to Nationwide data. This represented a sharp decline from the prior month’s 1.6% annual increase and constituted the most sluggish year-over-year growth rate recorded since December. On a monthly basis adjusted for seasonal variations, house prices contracted 0.2%.
The subdued housing market conditions have been attributed to geopolitical tensions stemming from conflict in the Middle East. The resulting disruption to energy supplies from the Gulf region has elevated energy costs and fueled inflation concerns, subsequently driving increases in mortgage interest rates. Chief economist Robert Gardner noted that elevated geopolitical tensions continue to exert upward pressure on energy prices, which in turn has prompted financial market expectations of future Bank of England rate increases and maintained upward pressure on mortgage pricing. Recent data from Moneyfacts indicated that two-year fixed mortgage rates have reached their highest levels since July 2024, with five-year fixed rates at their peak since October 2023, both exceeding 5.9%.
Market participants are currently pricing in a 92% probability that the Bank of England will raise its base rate from 3.75% to 4% at its November 5 meeting. Additional rate increases are anticipated throughout 2027, with expectations for the base rate to reach 4.75% by year-end 2027. The central bank is working to reduce inflation, currently at 3.1%, toward its 2% target, though officials projected last month that inflation could exceed 4% in the opening quarter of 2027.
Regional variations in house price performance emerged, with East Anglia experiencing the largest annual decline of 0.7%, while Northern Ireland posted the strongest growth at 5.9%. Gardner indicated that improving underlying affordability—as house price growth has trailed earnings growth—may support renewed market momentum if geopolitical pressures ease and confidence recovers.
The government’s Your First Home scheme is set to launch, offering first-time buyers government-backed equity loans equal to 20% of purchase prices with deposits as low as 2.5%. The initiative, limited to England and new-build properties, has already boosted share prices of major housebuilders including Persimmon, Barratt Redrow, Taylor Wimpey, Crest Nicholson, and Vistry.
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