UK house prices remained unchanged in September as higher mortgage costs and continued economic uncertainty put pressure on the housing market.
The average UK property price stood at £298,441 in September, almost exactly the same as in August and a year earlier, according to the latest Lloyds House Price Index. Economists had expected prices to rise slightly, making the flat reading weaker than forecast.
The figures follow a 0.3% fall in house prices in August, which marked the first annual decline recorded by the index in almost three years. The market has remained subdued as buyers continue to face affordability pressures and higher borrowing costs.
Mortgage Costs Continue to Rise
Mortgage rates have increased in recent weeks despite the Bank of England leaving the base rate unchanged. Rising borrowing costs in financial markets have pushed lenders to increase the rates offered to borrowers.
The average five-year fixed mortgage rate reached 6% in October, its highest level in three years. This is adding further pressure for homeowners coming to the end of fixed-rate deals, as well as buyers who are already struggling to afford a property.
Higher mortgage payments could also make some potential buyers reconsider how much they can afford to spend, while sellers may face a smaller pool of buyers willing or able to meet their asking prices.
Buyers Remain Cautious
Despite the challenging conditions, there are still signs of demand in the market. Lloyds reported that new enquiries from prospective buyers had reached their highest level since February.
However, higher mortgage rates and wider economic uncertainty are encouraging many buyers to take a more cautious approach. Lloyds expects any movement in house prices to remain modest in the near term.
The wider cost of living squeeze is also adding to concerns. Higher energy costs and uncertainty over the economy could affect consumer confidence and housing activity over the coming months.
Mortgage Applications Fall
Separate figures from Stonebridge showed that mortgage applications for home purchases fell by 18.2% in the third quarter compared with the same period last year. Applications from first-time buyers fell by 18.6%, highlighting the impact that higher borrowing costs are having on people looking to get onto the property ladder.
Remortgage applications increased, helping to offset some of the decline in purchase activity.
With mortgage rates remaining elevated and uncertainty continuing ahead of the Budget, the UK housing market is likely to remain subdued. For now, house prices appear to be holding up, but higher borrowing costs could continue to limit growth in the months ahead.
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