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Growth in UK house prices slowed to near stagnation in October, according to mortgage lender data that suggests buyers were cautious ahead of this week’s Budget.
House prices were up only 0.1 per cent between September and October, down from a 0.6 per cent rise in the previous month and below analysts’ expectations of a 0.3 per cent expansion.
The average house price was £265,738, up 2.4 per cent from October last year, which marked a sharp slowdown from the 3.2 per cent year-on-year rise registered the previous month. It was also below the 2.8 per cent forecast by economists polled by LSEG.
Marc von Grundherr, director of estate agency Benham & Reeves, said that during the month leading up to the Budget, the housing market “paused for breath to see what the government has up its sleeve”.
Amy Reynolds, head of sales at West London estate agent Antony Roberts, added that the Budget had not been as dramatic as feared and “the ‘wait and see’ approach we have seen from some buyers . . . will hopefully now ease”.
However, following large increases in government spending, borrowing and taxation announced in the Budget, traders have scaled back bets on how much the Bank of England will cut interest rates.
This is because the Budget measures pushed up inflation and economic growth expectations in the medium term. Fewer interest rate cuts will mean a slower decline in mortgage rates, which have come down from their peak in the summer of 2023.
The BoE is still expected to cut interest rates by a quarter point for the second time this year at its meeting on Thursday, which would take the benchmark rate to 4.75 per cent.
Elliott Jordan-Doak, economist at consultancy Pantheon Macroeconomics, said he now expected the average quoted 75 per cent loan-to-value two-year fixed rate mortgage interest rate to stay at around 4.5 per cent for the rest of the year, instead of falling to 4.1 per cent as expected before the Budget.
“Higher borrowing costs in the short term than previously expected could hold back house-price inflation,” he said. “But we still think that interest rates have fallen sufficiently to allow house prices to continue rising, and any uncertainty over the shape of the Budget will now have been resolved.”
Chancellor Rachel Reeves announced in the Budget an increase in the additional stamp duty surcharge for second homes from 3 per cent to 5 per cent, with immediate effect. This is aimed at discouraging buy-to-let investors and second-home buyers, potentially reducing competition for primary homes, said Karen Noye, mortgage expert at wealth management company Quilter.
“However, this could also worsen the shortage of rental properties, further driving up rents, especially in cities where demand remains strong,” she added.
Noye noted that the government’s £5bn investment in housing, aimed at increasing the supply of affordable homes and boosting regeneration projects, was “a positive step”, but noted that the benefits of this funding “will take time to materialise”.
The Budget also confirmed that the temporary stamp duty threshold of £425,000 will revert to £300,000 in March 2025.
Robert Gardner, chief economist at Nationwide, said this change would “lead to a jump in transactions in the first three months of 2025, and a corresponding period of weakness in the following three to six months, as occurred in the wake of previous stamp duty changes”.