UK house price growth slows to 0.8% in September as average values slip to £274,251

Nationwide index records monthly price decline

Average UK house prices fell 0.2% month on month in September to £274,251, after taking into account seasonal adjustments. On an annual basis, price growth halved from 1.6% in August to 0.8% in September, marking the slowest rate of expansion since December 2025. Property values across the UK have declined in four of the past five months, coming in below forecasts by economists. Regional trends diverged during the period, with East Anglia registering the sharpest annual price decrease at 0.7%, whereas Northern Ireland recorded the fastest pace of growth with an annual increase of 5.9%.

Mortgage rates climb ahead of Bank of England decision

Elevated borrowing costs have weighed on property demand across Britain. Data from Moneyfacts indicated that the average interest rate on a two-year fixed mortgage rose above 5.9%, reaching its highest point since July 2024. The average rate for a five-year fixed product also exceeded 5.9%, its highest level since October 2023. Bank of England statistics published on Tuesday showed mortgage approvals in August fell to their lowest level since 2023. At the same time, the effective interest rate on newly drawn mortgages climbed from 4.45% in July to 4.60% in August, representing the highest level in nearly two years. Financial markets are pricing a high probability of a 0.25 percentage point increase in the Bank of England base rate from 3.75% at its November meeting.

Geopolitical pressure on energy and buyer affordability

The slowdown in property transactions reflects wider economic disruption caused by the US-Israel war with Iran. Disruptions to Gulf oil flows have pushed energy costs upward and increased inflation concerns, driving up market interest rates that determine mortgage pricing. Nationwide chief economist Robert Gardner noted the direct link between global events and borrowing rates:

Geopolitical tensions remain high, with the conflict in the Middle East exerting upward pressure on energy prices, fanning inflation concerns.

Gardner noted that price growth staying well below wage gains has improved underlying affordability, suggesting buyer activity could recover in future quarters if energy costs recede and market interest rates return to pre-conflict levels. Knight Frank head of UK residential research Tom Bill stated that rising borrowing costs will continue to affect transaction volumes into the winter:

House prices are stalling as the impact of rising mortgage rates takes its toll on demand, a pattern we expect to continue in the final three months of this year.

Government first-time buyer scheme and lending forecasts

To assist purchasing activity, the UK government announced a support scheme last week aimed at first-time buyers, focusing on more affordable areas. Broader lending across the financial sector faces decelerating growth over the medium term. According to the EY UK Bank Lending Outlook, total bank lending growth will slow from 3.6% in 2025 to 2.9% in 2026, reaching a three-year low of 2.2% in 2027 before moving to 2.4% in 2028. Mortgage lending growth is forecast at 3.3% in 2026, up from 3.0% in 2025, but is expected to fall to 2.2% in 2027 and 2028 as higher interest rates, slower wage growth, and rising unemployment reduce borrowing demand.