House prices rose by 0.7% in September, taking annual growth to 3.2%, according to Nationwide. This represents the strongest annual house price growth figure since November 2022. Growth has typically been stronger in the north of the country, with annual growth in North West, Scotland and Yorks & Humber of 4.9%, 4.4% and 4.3% respectively. Price growth was lower in the south, but London outperformed with annual growth of 2.0%. 

This value growth comes alongside a marked improvement in activity, with mortgage approvals in August almost back to pre-Covid levels, just 3% below the 2017-19 average. New sales agreed and new instructions in September are even more positive, 8% and 9% above the 2017-19 average for the month. Demand and supply seem to be rising together, meaning that there is little pressure on prices.

Rising activity comes on the back of falling mortgage rates, with the average rate for a 2-year fix (75% LTV) now down to 4.8% in August, compared to 6.2% the year before. While affordability has been improving, average housing costs are still far higher than they were before the pandemic, which will limit price growth over coming months.

Market conditions over the next few months will continue to be reliant on mortgage interest rates. Bank of England Governor, Andrew Bailey, has hinted that interest rates could fall more quickly than economists are expecting, which would be a boost for the housing market. But this relies on inflation remaining close to the 2% target. The situation in the Middle East is a key risk factor and the price of crude oil has already increased, which could in turn push up inflation and limit rate cuts.

The Budget on 30th October is also a factor for the market. Anticipated changes to capital taxation have already caused some Buy to Let landlords and second homeowners to sell, reducing the supply of homes to rent. And the prime markets are wary of any change to the treatment of ‘non-doms’. Support for new homes, particularly social housing, is also expected.

Coastal markets in the South and East have experienced the largest price falls, according to more lagged Land Registry data, in a reverse of the lockdown induced ‘Race for Space’ trend where they were among the strongest performers. In turn this may be driving the stronger growth the commuter markets of outer London and parts of the Home Counties.

Annual rental growth across the UK in August was 4.8% according to Zoopla, a further deceleration from July’s annual growth figure of 5.4%. With falls in rental supply persisting according to the RICS survey, this suggests rents are reaching an affordability ceiling across large parts of the country. This is most acute in London (2.1% annual growth) where rental values are highest nationally. More affordable markets such as the North East and North West are less affected by this with annual rental growth of 8.6% and 6.7%.

Supply remains a key factor in core city markets. Rental growth has slowed most in Nottingham, where there is more supply, but remains strong in supply-constrained Newcastle.