UK house prices saw no growth for the first time in more than a year in September, highlighting the growing risks to the property market as Britons brace for a sharp increase in the cost of borrowing.
The figures from Nationwide Building Society also showed that year-on-year price growth cooled to 9.5% -- the weakest since April 2021 -- from 10%. London remains the weakest-performing region.
After years of climbing prices, the UK property market is now under serious threat as the prospect of soaring interest rates spooks buyers. Lenders have also been withdrawing mortgage products and dramatically pushing up rates.
Separate Bank of England figures Friday showed the effective rate on new mortgages jumped by 22 basis points in August to 2.55%, the highest level since at least 2015. Demand for home loans nonetheless continued, with approvals unexpectedly surging to their highest since January.
Read More: UK Mortgage Turmoil Threatens 70% Surge in Average Cost by March
That’s unlikely to be sustained, with traders now pricing in BOE rates of around 6% next year in the wake of the government announcing the biggest tax cuts since 1972.
The blow to affordability is expected to eclipse the boost from a cut in stamp duty on property purchases, which was part of an annual £45 billion giveaway unveiled by Chancellor Kwasi Kwarteng a week ago.
“Headwinds are growing stronger,” said Nationwide Chief Economist Robert Gardner.
Analysts at Credit Suisse say that house prices “could easily fall 10% to 15,” and others including Niraj Shah of Bloomberg Economics predict double-digit declines.
(Updates with BOE data on mortgage rates)
©2022 Bloomberg L.P.