UK house prices fall at fastest rate since May as mortgage rates weigh on demand

UK house prices declined at their quickest pace since May, with expensive mortgages and uncertainty before the Autumn Budget discouraging potential buyers. September saw a 0.2% drop in prices, more than economists anticipated and reversing the 0.2% increase in August, according to Nationwide data. The average UK home cost £274,251 in September.

Prices were 0.8% higher than a year ago, down from the 1.6% rise in August. The data suggests a sluggish property market leading up to John Healey's first Budget on October 28, when additional housing market measures are anticipated. Separate HMRC data revealed August home sales fell 1% from July and 2% from a year prior. Nationwide's chief economist, Robert Gardner, noted that market activity and house prices have remained lackluster recently, partly due to uncertain economic conditions.

Higher energy prices have raised inflation concerns and prompted speculation of rising interest rates, adding pressure to mortgage costs. Gardner said higher borrowing costs have partly counteracted gains in affordability, as wages have grown faster than property prices. However, he added that higher energy prices have not yet impacted underlying price pressures.

The property sector is now awaiting the Budget for more insight. While the national slowdown masks regional differences, Northern Ireland led the UK in Q3 growth at 5.9%, with prices up 5.9% year-over-year, though this slowed from 8.6% in the previous quarter. The North West led England with a 3.9% rise, while Scotland and the North saw 3.3% increases.

Southern England saw a decline of 0.1%, while London was the only southern region to record an annual rise, with prices up just 0.4%, compared to the 1.6% increase in the previous quarter. Eight of Nationwide's 13 regions saw annual growth of less than one percent, while four experienced outright declines. The data also highlights a widening gap between home types, with terraced houses up 1.8% year-over-year, while flats were virtually unchanged.

Since 2020, typical flat prices have risen 14%, less than half the 31% increase in semi-detached homes. Nationwide attributes this gap, in part, to London's weaker performance, where flats make up a larger portion of the housing market.