The UK housing market experienced a marked slowdown in the year ending September, with annual house price growth falling to 0.8%, according to Nationwide data. This represented a significant deceleration from the 1.6% growth recorded the previous month and marked the slowest pace since December of the previous year. Month-on-month prices declined 0.2% after accounting for seasonal adjustments.
The deceleration reflects broader economic headwinds affecting the property market. Geopolitical tensions centered on Middle East conflict have disrupted energy supplies and elevated inflation concerns, prompting financial markets to anticipate further interest rate increases from the Bank of England. Mortgage rates have risen substantially, with two-year fixed rates reaching their highest levels since July 2024 and five-year fixed rates hitting their highest since October 2023, both exceeding 5.9%. These higher borrowing costs have dampened buyer demand and activity.
Markets currently price in a 92% probability that the Bank of England will raise its base rate from 3.75% to 4% at its next meeting scheduled for 5 November. Further increases are anticipated throughout 2027, with expectations pointing to at least three additional hikes that could push the base rate to 4.75% by year’s end. The central bank is attempting to control inflation, currently at 3.1%, though forecasts suggest it could exceed 4% in the first quarter of 2027.
Regional variations emerged in the data, with East Anglia experiencing the steepest annual decline at 0.7%, while Northern Ireland demonstrated the strongest growth at 5.9%. Despite the slowdown, Nationwide’s chief economist noted that underlying affordability has improved as house price growth has significantly trailed earnings growth, with mortgage rate increases only partially offsetting these gains.
Looking ahead, the government’s Your First Home scheme is expected to provide support to first-time buyers through equity loans covering 20% of purchase prices and minimum deposits of 2.5%. The initiative, applicable to new-build properties in England, has already boosted housebuilder share prices.
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