Annual UK house price growth halved in September, with the average home now costing £274,251, as geopolitical tensions in the Middle East continue to weigh on the market.
Nationwide reported that prices rose 0.8% year on year in September, down from 1.6% in August and the slowest pace since December last year. On a monthly basis, prices fell 0.2% after seasonal adjustments.
Conflict drives up mortgage costs
The housing market has softened in recent months as the US-Israel war with Iran and disruption to Gulf oil and gas flows push up energy costs and inflation fears. This has fed through to higher mortgage rates, making home purchases more expensive.
“Geopolitical tensions remain high, with the conflict in the Middle East exerting upward pressure on energy prices, fanning inflation concerns,” said Robert Gardner, Nationwide’s chief economist. “This in turn has led to mounting financial market expectations of Bank [of England] rate increases, which has maintained upward pressure on the market interest rates which underpin mortgage pricing.”
Moneyfacts reported earlier this week that the average two-year fixed mortgage rate had risen to its highest level since July 2024, while the average five-year fixed rate hit its highest since October 2023. Both were above 5.9%.
Rate rise expectations and regional differences
Investors are pricing in a 92% chance that the Bank of England will raise rates from 3.75% to 4% at its next meeting on 5 November. Markets expect at least three further rises in 2027, taking the base rate to 4.75% by the end of next year.
The Bank is aiming to bring inflation, currently at 3.1%, back to its 2% target, though it predicted last month that the consumer price index could rise above 4% in the first quarter of 2027.
Regionally, East Anglia saw the biggest annual price decline at 0.7%, while Northern Ireland recorded the strongest growth at 5.9%.
Affordability improving despite slowdown
Gardner said the slowdown has improved affordability for some buyers. “Underlying affordability is improving, as house price growth has been well below earnings growth for some time,” he said. “These gains have been only partially offset by higher mortgage rates. This suggests that activity should regain momentum in the quarters ahead, providing the energy shock fades and confidence returns – especially if market interest rates fall back to pre-conflict levels.”
Meanwhile, prospective homeowners are preparing for the launch of the government’s Your First Home scheme, which offers a government-backed equity loan worth 20% of the purchase price, a minimum deposit of 2.5%, and a standard mortgage covering 77.5% of the property’s value. The scheme applies only to England and new-build homes, and its announcement has already lifted the share prices of housebuilders including Persimmon, Barratt Redrow, Taylor Wimpey, Crest Nicholson and Vistry.
