UK Home Prices Flatline as Mortgage Pressure Mounts

UK home prices stagnated in September, with climbing mortgage costs beginning to dampen market activity.

The average home price stood at £298,441, nearly unchanged year-on-year and month-on-month, per the Lloyds (formerly Halifax) HPI tracker.

Economists surveyed by Reuters had forecast a 0.1% monthly increase and a 0.2% annual rise on average.

This followed a 0.3% drop in August, the first monthly decline in three years, as geopolitical uncertainty, higher mortgage rates, and affordability pressures weighed on buyers.

Despite no change in the Bank of England base rate since December last year, most major banks and building societies have raised rates recently due to global bond market turmoil.

Andrew Asaam, Lloyds’ mortgages director, noted: “The market has been subdued, but property prices have remained resilient amid higher mortgage rates, reflecting shifting expectations about the base rate’s trajectory.”

On Monday, the average five-year fixed-rate mortgage hit 6% for the first time in three years. This is tough for borrowers whose fixed deals are expiring, prospective buyers seeking mortgages, and sellers hoping for top prices.

This compounds the pressure on consumers from higher energy bills, tied to the Iran conflict, and rising costs elsewhere that spark fears of a fresh cost-of-living crisis.

Asaam added: “Higher mortgage rates and economic uncertainty are prompting a more cautious approach, yet new buyer inquiries are at their highest since February.”

He suggested any price changes would likely stay modest.

Tom Bill, Knight Frank’s head of UK residential research, said: “This year has seen rising energy prices and stagnant house prices, with the volatile Middle East conflict pushing borrowing costs higher. The upcoming budget adds uncertainty as buyers and sellers question which tax rumours will materialise.”

Mortgage applications for home purchases fell between July and September, as higher borrowing costs squeezed buyers’ budgets, according to quarterly data from Stonebridge, a major UK mortgage network.

Stonebridge reported an 18.2% year-on-year decline in home purchase mortgage applications in Q3, with first-time buyer applications dropping 18.6%.

However, a rise in remortgaging applications partially offset the decline in overall mortgage activity.

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