House worth rises gradual in October, says Nationwide: Where will they go from right here?

House price growth slowed down in October, according to the latest figures from Nationwide.

Britain’s biggest building society said average prices rose a mere 0.1 per cent last month – but the rise came from a statistical quirk.

The monthly increase was down to seasonal adjustment – which aims to smooth out months that are typically more and less active. 

The non-adjusted average house price actually fell 0.1 per cent, from £266,094 to £265,738 between September and October. 

Year-on-year, Nationwide says the typical home is up 2.4 per cent, representing a modest slowdown from the annual 3.2 per cent pace recorded last month.

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

‘Solid labour market conditions, with low levels of unemployment and strong income gains, even after taking account of inflation, have helped underpin a steady rise in activity and house prices since the start of the year.

‘Providing the economy continues to recover steadily, as we expect, housing market activity is likely to continue to strengthen gradually as affordability constraints ease through a combination of modestly lower interest rates and earnings outpacing house 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 influence the pricing of fixed-rate mortgages.

This in turn could stop house prices from increasing over coming months, given that higher mortgage rates make buying more expensive.

Fixed-rate mortgage pricing is largely based on Sonia swap rates – the inter-bank lending rate, based on future interest rate expectations.

When Sonia swaps rise sufficiently it often results in fixed mortgage rates going up, and vice versa when they fall.

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

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

However, he suspects we will see some quieter months ahead in the market. 

‘Ahead of the Budget house prices were resilient and mortgage approvals and housing transactions were on an upward trajectory,’ said Codling.

‘Gilt yields and swap rates have risen since the Budget and if these increases hold mortgage rates are likely to rise and this will temper house price growth and housing market activity as we move into a traditionally quieter period of the year for the UK housing market.’ 

Stamp duty changes could hit market 

In the Budget, the Chancellor also confirmed that the temporary increase in the nil rate stamp duty thresholds would expire on 31 March 2025 and revert back to their previous levels, as had originally been set out by the previous Government. 

Since late 2022, a first-time buyer purchasing a property up to the value of £425,000 has paid no stamp duty. If their home is more expensive, they only pay the tax on the portion above £425,000.

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

It leaves aspiring first-time buyers with five months before they might have to shell out thousands of pounds more.

The largest effects are 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 homes, where the change will increase cost of moving for the affected first-time buyers by £2,900 on average. 

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

It will result in buyers having to pay stamp duty on 93 per cent of properties on the market in England, according to analysis by Leeds Building Society.

At the moment, buyers only pay stamp duty on 70 per cent of houses on the market.

‘The main impact of the stamp duty changes is likely to be on the timing of property transactions, as purchasers aim to ensure their house purchases complete before the tax change takes effect,’ said Gardner. 

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

‘However, the swings in activity are likely to be somewhat less pronounced, in this instance, given that the stamp duty reduction has been in place for some time and its planned expiry was well known.’

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

These buyers already faced a 3 per cent surcharge above and beyond what those purchasing a property to live in currently pay. 

However, from today that will go up to 5 per cent adding thousands of pounds to the cost of buy-to-let and second home purchases.

Under current rules, a £300,000 property with the surcharge included 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 & Northern Ireland. 

‘We estimate for a typical buy to let purchase, this would add approximately £4,000 to stamp duty costs,’ says Gardner.

‘Consequently, this may dampen demand in this part of the housing market.’