House prices slowly rise in October, says Nationwide: where do they go from here?

According to the latest figures from Nationwide, house price growth slowed in October.

Britain’s largest building society said average prices rose by just 0.1 percent last month, but the increase was due to a statistical quirk.

The monthly increase was due to seasonal adjustments, which aim to smooth out months that tend to be more and less active.

The unadjusted average house price actually fell by 0.1 percent between September and October, from £266,094 to £265,738.

Year-on-year, Nationwide says the average home count increased by 2.4 percent, marking a modest slowdown from the 3.2 percent annual growth recorded last month.

Robert Gardner, chief economist at Nationwide, said: ‘Housing market activity has remained relatively resilient in recent months, with mortgage approvals approaching pre-pandemic levels despite the significantly higher interest rate environment.

‘Solid labor market conditions, with low unemployment and strong income growth, even taking inflation into account, have contributed to a steady increase in activity and house prices since the start of the year.

“If the economy continues to recover steadily, as we expect, housing market activity will likely continue to strengthen gradually as affordability constraints ease through a combination of modestly lower interest rates and profits outpacing home price growth. ‘

What the Budget means for house prices

Mortgage costs could rise after Rachel Reeves’ budget led to a spike in swap rates, which affect the pricing of fixed-rate mortgages.

This, in turn, could prevent house prices from rising in the coming months, as higher mortgage rates make buying more expensive.

The pricing of fixed-rate mortgages is largely based on the Sonia swap rates – the interbank rate, based on future interest rate expectations.

When the Sonia swaps rise enough, this often results in a rise in the fixed mortgage rate, and vice versa when it falls.

Yesterday, five-year swaps rose to 4.04 percent, compared to 3.87 percent on October 29, the day before the Budget. They are up from 3.7 percent a week ago.

Anthony Codling, head of European housing and building materials at investment bank RBC Capital Markets, thinks it is too early to predict the impact of this week’s Budget on house prices.

However, he suspects that we will see even quieter months in the market.

“Prior to the Budget, house prices were resilient and mortgage approvals and housing transactions were on an upward trend,” Codling said.

‘Gilt yields and swap rates have risen since the Budget and if these increases are sustained, mortgage rates are likely to rise and this will dampen house price growth and housing market activity as we enter a traditionally quieter time of year for the UK housing market. ‘

Changes to stamp duty may be coming to market

In the Budget, the Chancellor also confirmed that the temporary increase in zero-rate stamp duty thresholds would expire on March 31, 2025, returning to their previous levels as originally set out by the previous government.

Since the end of 2022, a first-time buyer purchasing a property worth £425,000 will pay no stamp duty. If their house is more expensive, they will only pay tax on the portion above £425,000.

However, when this limit reverts to the old £300,000 threshold from April 1, it will mean the same £425,000 purchase will be subject to a tax bill of £6,205.

It gives would-be first-time buyers five months before they may have to pay thousands of euros extra.

The biggest impact is likely to be in the south-east of England, where 40 per cent of first-time buyers paid between £300,000 and £425,000 for their home. Average £2,900.

Tax increase: this graph shows the percentage of first-time buyers likely to pay stamp duty after the thresholds rise, but won’t today – and how much their average bill would be

For all other buyers, the stamp duty threshold will be reduced from the current level of £250,000 to £125,000.

According to an analysis by the Leeds Building Society, this will result in buyers paying stamp duty on 93 percent of properties on the market in England.

Currently, buyers only pay stamp duty on 70 percent of homes on the market.

“The most significant impact of the stamp duty changes is likely to be on the timing of property transactions, as buyers look to complete their home purchases before the tax change comes into effect,” Gardner said.

‘This will lead to a jump in the number of transactions in the first three months of 2025, and a corresponding period of weakness in the subsequent three to six months, as happened in the wake of previous stamp duty changes.

‘However, the fluctuations in activity are likely to be slightly less pronounced in this case as the stamp duty cut has been in place for some time and its planned end was well known.’

The chancellor also increased the stamp duty surcharge for second home buyers and investors.

These buyers already faced a 3 percent surcharge on top of what those purchasing a home to live in currently pay.

However, from today this will rise to 5 percent, adding thousands of euros to the costs of buy-to-let and second-home purchases.

Under current rules, a £300,000 property, including the surcharge, would cost £11,500 in tax.

That will now rise to £17,500, with the surcharge rising to 5 per cent.

Nationwide says based on data for the year to June 2024, this would affect around 194,000 transactions, around one in five residential transactions in England and Northern Ireland.

“We estimate that on a normal buy-to-let purchase this would add around £4,000 in stamp duty costs,” says Gardner.

‘This could therefore dampen demand in this part of the housing market.’