In a surprising turn for the UK housing market, house prices rose by 3.9% year-on-year in October, marking a new record high, according to the latest Halifax House Price Index (HPI). The average UK home now costs £293,999, eclipsing the previous peak of £293,507 recorded in June 2022.

Despite this record, the rate of annual growth slowed from September’s 4.6% to 3.9%. On a month-to-month basis, house prices edged up by 0.2%, while quarterly figures showed a 1.2% increase, suggesting the market is steadying after a volatile few years.

Market Resilience Amid Economic Challenges

Amanda Bryden, head of mortgages at Halifax, said the resilience of the housing market has surprised many, especially given the challenging economic climate. “It may come as a surprise to many that house prices have reached these heights again, but perhaps more noteworthy is that they didn’t fall very far in the first place,” Bryden stated.

She noted that while the market has slowed considerably from the pandemic boom, which saw a 21% rise in house prices from January 2020 to mid-2022, recent figures indicate the market is holding steady, with only a modest 0.2% rise over the past two and a half years.

Bryden added that market activity is showing signs of improvement, driven partly by a decline in average mortgage rates, which are now over 160 basis points lower than summer 2023 levels. “Although affordability remains a concern for many, the number of new mortgages agreed upon recently hit a two-year high, boosted by this drop in mortgage rates and ongoing positive income growth,” she said.

Looking ahead, Bryden warned of potential obstacles for prospective buyers, including slower-than-expected rate cuts from the Bank of England, along with new policies such as increased stamp duties for second-home buyers and changes to thresholds for first-time buyers. These factors could keep borrowing costs elevated, potentially tempering demand.

Mixed Reactions From Property Professionals

The Guild of Property Professionals’ CEO, Iain McKenzie, reported a steady supply of homes, suggesting that while prices are high, they remain within reach for many buyers. “Our members are seeing healthy levels of housing supply, so while prices are peaking, they aren’t out of control,” McKenzie said. However, he noted that following the Autumn Budget, some lenders are already raising rates, which could impact affordability in the coming months.

Tomer Aboody, director at MT Finance, shared optimism about the market’s momentum as the year draws to a close. “There’s a confident finish to 2024, with buyers taking advantage of lower rates and inflation,” he remarked. He cautioned, however, that as interest rates settle, the positive trend could lose some momentum.

Maeve Ward, head of intermediary sales at Together, highlighted the support from government initiatives aimed at boosting the housing market, including £500 million in additional funding for affordable housing and a £5 billion commitment to building 1.5 million homes. Ward said these measures could stimulate growth in the market, particularly for first-time buyers and developers.

Impact of Interest Rates and Government Policy

SPF Private Clients’ CEO Mark Harris pointed to the influence of fluctuating gilt yields and swap rates on mortgage pricing. “The market has seen an increase in activity thanks to lower mortgage rates, though the recent Budget has driven up swap rates, which underpin mortgage pricing,” Harris explained. He noted that while some lenders secured favourable swap rates before the Budget, others have started to raise mortgage rates.

Harris also referenced the Bank of England’s anticipated rate cut, which, if implemented, could bolster buyer confidence and affordability. However, he suggested that rate cuts might proceed at a slower pace than previously expected, likely extending into the new year.

As the year concludes, the UK housing market remains on an upward trajectory, with experts forecasting continued growth, albeit at a tempered pace. Factors such as rising mortgage rates, supply dynamics, and evolving government policies will play pivotal roles in shaping the outlook for buyers and sellers in 2024.