UK housing market shows surprising resilience as activity stabilises and values hold pace
House prices grew by 0.5% in September, according to Nationwide. That put price growth at 1.1% over the last three months and 2.5% over the last year, surprisingly strong numbers given the lingering uncertainty in the market. There is a clear North-South split, with the North East and Yorkshire and the Humber seeing 5.2% and 3.9% annual growth, compared to less than 1% across the South and London.
National activity levels are broadly in line with pre-Covid norms. Sales agreed were 5% above the 2017-19 average in September, whilst mortgage approvals were only 4% below the 10 year average in August. The number of completed transactions in August was 10% below the 2017-19 level, but given the strength of other indicators this may still be part of normalisation following the April SDLT change.
There is more activity in the North, where price growth is strongest. Exchange numbers over the last six months were above the pre-pandemic average in the North, but below in the South and Midlands. London was above pre-pandemic levels, but this compared to a weaker 2017-19 market. Demand for properties above £500,000 has declined ahead of the Budget, according to Zoopla, and we have seen lower sentiment in prime markets. This is due to speculation around property taxes on higher value homes, which would disproportionately affect higher value markets in London and the South.
The outlook for both house prices and activity levels looks increasingly challenging, despite improved affordability. Lower mortgage rates alongside relatively strong wage growth have improved the affordability of buying a house over the last year. But consumer confidence remains subdued and the RICS survey for September has reported fewer buyer enquiries and fewer instructions to sell for the second month in a row.
Affordability improvements may be on pause as inflation remains sticky. In its September meeting, the Bank of England Monetary Policy Committee voted to hold the base rate at 4%, citing persistent inflation. While initially forecasting a further base rate cut in Q4, Oxford Economics are now forecasting the next cut to come in Q1 2026 as the forthcoming Budget falls awkwardly between the last two meetings in 2025. As a result, mortgage rates will largely be held until base rate cuts resume again.
More localised house price data from June shows that areas with the greatest value growth were in Scotland and the North, chiefly North Lanarkshire and Middlesbrough with prices up 8.4% and 8.2%, respectively. Fewer regions are seeing prices fall, with just 14% of local authorities seeing price falls. Ceredigion and Barnet saw the most significant price falls of -7.5% and -4.4%.
Annual rental growth across the UK in August was 2.5% according to Zoopla, a slight acceleration from 2.4% in July. This comes despite RICS surveyors reporting a slight dip in tenant demand.
The Renters’ Rights Bill is nearing its final stages, and landlords are waiting to find out what the expected transition period will look like. There are warnings that implementing these changes could create an uncertain market as new rules come into force, but the pace and scale of change remains unknown. RICS surveyors continued to report landlords leaving the market as a result of legislative changes. The National Residential Landlord Association, however, reported a boost in landlord confidence, possibly indicating adaptiveness from landlords looking to remain in the sector.