UK house price growth slows to 0.5% as mortgage rates near 6%

By Nathan Brooks

UK house prices rose by an annual rate of 0.5% in October, the weakest pace in more than two years, according to Nationwide. The average UK property price stood at £273,566, flat from September and below the 0.8% annual increase recorded in the year to September.

The market’s slowdown coincided with a sharp rise in the cost of borrowing. Moneyfacts said the average five-year fixed mortgage rate reached 5.99% on Thursday, hitting the 6% barrier for the first time in three years. The average two-year fixed rate stood at 5.97%, only 0.02 percentage point lower.

For buyers, the two average rates now offer virtually no meaningful term difference. The more consequential change is that a five-year fix has moved back to levels last seen three years ago while price growth has cooled to almost nothing. That combination leaves households making housing decisions against a more expensive credit backdrop.

The mortgage-base-rate disconnect

This is not a conventional response to Bank of England policy. The central bank has kept its key rate at 3.75%, with no change since last December. Yet volatility in the bond market has lifted the swap rates that influence fixed-rate mortgage pricing.

The monetary policy committee (MPC) is expected next week to vote for a first rate increase in three years, taking the base rate to 4%. Robert Gardner, Nationwide’s chief economist, said the Middle East conflict had intensified inflation concerns and raised expectations of higher interest rates.

Gardner also expected prices to decline further. “Surveyors report that new buyer inquiries remain weak. Consumer sentiment dipped noticeably in October, with households becoming less confident about the outlook for the general economy as well as their own financial situation in the year ahead.”

What does this change for buyers?

The immediate change is a tougher affordability test for households entering the market, not simply slower price appreciation. New buyer inquiries remain weak, according to the survey evidence in Gardner’s comment, while consumer confidence has slipped on both the economy and families’ finances. The 5.99% average five-year rate means first-time-buyer support starts against a more expensive borrowing market.

This week, the chancellor, John Healey, confirmed the government’s new £4.7bn Your First Home scheme. It is designed to help first-time buyers without access to the “bank of mum and dad”. Tom Bill, Knight Frank’s head of UK residential research, said the impact of rising mortgage costs “eclipses any support measure announced in this week’s budget”.

Bill expects some near-term stabilization, but not a return to the previous market. “The absence of major shocks from the chancellor may produce a modest relief bounce in coming months. However, asking prices will need to reflect the much tougher financial landscape that buyers face.”

Rob Wood, chief UK economist at Pantheon Macroeconomics, offered a similarly limited forecast. He said the £4.7bn scheme could provide a “modest boost” to the market, but prices were likely to remain subdued next year.

For first-time buyers, the practical question is whether targeted help can offset a 5.99% average five-year mortgage and weaker confidence. The evidence cited points to only a modest boost. For sellers, Knight Frank’s warning suggests any relief bounce may come with asking prices adjusted to buyers’ tighter budgets.

The next test arrives next week, when the MPC is expected to decide whether to lift the base rate from 3.75% to 4%. If it does, the rise in fixed mortgage costs would also have a direct policy trigger.