House prices fell by -0.2% in September, according to Nationwide. This meant annual growth halved to 0.8% in September. This was down from 1.6% in August, with growth set to end the year stronger than we expected in our June forecasts. The quarterly release of regional data has been in line with expectations. House price growth has been higher in more affordable markets in the north of the country, and it has been lower in London and the South which are less affordable markets that are more sensitive to mortgage rates.

Mortgage approvals remain low, as interest rates rise. The average 2- and 5-year fixed mortgage rates rose to 6%, the highest level since the end of 2023, according to Moneyfacts. These higher mortgage rates are suppressing mortgage approvals. August was the fourth consecutive month when they were -15% below the 2017-19 average. This low level of activity is now showing up in the completed transaction numbers. These fell sharply to -16% below the 2017-19 average in August. Activity levels are unlikely to improve while mortgage rates remain at current levels.

Supply is increasing and there is a high level of homes on the market. TwentyCI reported that new instructions were 11% above the 2017-19 average in September. This comes at a time when sales numbers are low. High supply and low demand means there is little impetus for price growth over the next few months.

Higher mortgage rates are here to stay so the market is likely to remain tough. The Bank of England Monetary Policy Committee (MPC) is forecast to increase the base rate to 4.25% by early 2027, according to Oxford Economics. Rises are expected at the next MPC meeting in November and at the February meeting. This means mortgage rate are unlikely to fall much before the second half of 2027. So, demand is likely to remain low for the next few months. Five million households who agreed low mortgage rates in 2022 will come off these by the end of 2027. Some will face much higher costs and may need support from their lender.

Scotland and the North West had the most house price growth, according to more localised data from June. South Ayrshire (11.6%), East Dunbartonshire (10.3%) and East Ayrshire (9.3%) saw the highest annual growth. The weakest annual growth was in Kensington and Chelsea (-9.2%), Westminster (-7.4%) and Aberdeen City (-6.9%).