Annual rate of UK house price growth halved in September, says Nationwide

As the annual rate of growth in UK house prices halved to 0.8 per cent in September, from 1.6 per cent in August, Sarah Coles, head of personal finance at AJ Bell, says that expensive mortgage rates are pricing buyers out.

She said: “The traditional autumn house price bounce fell flat in September, with prices falling during the month. This was so unusual for the time of the year that it meant the annual price rise actually halved. Prices are now growing at their slowest pace since December last year, and are significantly lagging inflation. It means property is losing value once inflation is taken into account.

“It’s easy to see why. Mortgage rates have been climbing since early August, forcing buyers to rethink their plans. They kept rising relentlessly through September too, so by the end of the month, average five-year fixed rates reached a three-year peak – according to Moneyfacts.

“This has come despite the fact the Bank of England base rate has remained on hold. It’s due to conflict in the Middle East. The fact there’s no end in sight means oil prices have ramped up. This has raised fears that inflation will be higher for longer and that the Bank will raise rates. This, in turn, has pushed bond yields up, and because bonds are used to price mortgages in the swaps market, it has made fixed rate deals more expensive. Because fixed deals dominate the market, higher rates hit would-be-buyers hard.

“House prices are still rising more slowly than wages, so they’re getting more affordable on paper. It’s just that, in reality, more expensive mortgage rates are pricing people out.

“The fact that property is now losing value after inflation could have a further dampening effect on buyer confidence, especially in parts of the country where property prices are actually falling. Over the past three months, we’ve seen price drops across the South West, East Anglia, East Midlands and outer London.

“Future movements are difficult to predict, because so much depends on what happens next in the Middle East, which is so uncertain. However, while you can’t control what’s happening in the wider world, you can control your own position. If you’re being forced to sit on your hands and wait for mortgage rates to improve, this is a great opportunity to put yourself in a better position to buy.

“If you’re trying to move up the property ladder, take a look at any work that needs to be done on your own home, and whether you now have the time and space to get that sorted before the move – so you’ll be more attractive to buyers when the property eventually goes up for sale. If you’re a first-time buyer, you may be able to top up your Lifetime ISA and get a bigger bonus from the government. Meanwhile, for anyone about to embark on this expensive process, it’s a useful time to beef up your emergency savings pot, so you can manage those first expensive months in a new property.”