Market News

(Bloomberg) -- UK house prices rose unexpectedly in October, adding to signs that the property market is stabilizing as the Bank of England nears the end of its rate-hiking cycle.  

The average price of a home gained 0.9% to £259,423 ($315,240) following a 0.1% rise in September, according to mortgage lender Nationwide Building Society. The jump was the largest since August last year and defied economists’ expectations for a 0.4% fall.

Prices were down 3.3% from the same time a year ago, an improvement on the 5.3% annual drop the month before.

The data will fuel hopes that a downturn in the property market will be less pronounced than originally expected. Economists had predicted a fall of around 10% from the peak in August last year. The peak-to-trough drop so far is 4.5%.

The BOE held interest rates at 5.25% at their last meeting in September, causing mortgage rates to ease, and is expected to do so again tomorrow. Investors see another quarter-point increase at the most by early next year as inflation subsides and the economy starts to feel the effect of the rapid monetary tightening since the end of 2021.

Despite the surprising rise in prices, Nationwide’s Chief Economist Robert Gardner said housing market activity was “extremely weak.”

“The uptick in house prices in October most likely reflects the fact that the supply of properties on the market is constrained,” he said. “There is little sign of forced selling, which would exert downward pressure on prices, as labor market conditions are solid and mortgage arrears are at historically low levels.”

Gardner said he expected house prices to “remain subdued” over the coming quarters.

Just 43,300 mortgages were approved in September, according to BOE data, which is around 30% below the prevailing monthly average in 2019. Gardner said this was “not surprising” as affordability is constrained — while prices have fallen from their peak, they are still 17.7% above pre-pandemic levels.

For much of this year, house prices have held up better than expected. Economists are divided on whether this means house prices will level off, since rises in unemployment have been relatively muted, or whether the worst is to come next year when the economy is expected to stagnate or even dip into recession. 

“Nationally, there remains a significant shortage of housing inventory across most locations and price points. Consequently, any slow-down in sales volumes from homeowners is likely to be offset by increased demand from renters and investors,” said Tom Brown, Managing Director at Ingenious Real Estate. “With rates forecast to be at or nearing their peak, we maintain a cautiously optimistic outlook and anticipate relative stability in the near future.”

--With assistance from Irina Anghel.