UK House prices beat forecasts before budget

House prices rose more than expected last month in a further sign of resilient demand despite the possibility of property-related tax reforms in the budget. Average prices rose 0.3 per cent in October after rising by 0.5 per cent in September, mortgage lender Nationwide’s latest house price index showed.

Year-on-year prices were 2.4 per cent higher, up from a 2.2 per cent annual increase in September.

Economists had forecast no change over the month and a 2.3 per cent increase over the year.

Robert Gardner, Nationwide’s chief Martin Strydom economist, said: “Against a backdrop of subdued consumer confidence and signs of weakening in the labor market, this performance indicates resilience, especially since mortgage rates are more than double the level they were before Covid struck and house prices are close to all-time highs.

”The figures come after Bank of England data on Wednesday showed that the number of mortgages approved by lenders in September came in higher than expected. Mortgage approvals totalled65,944 during the month, the highest figure since December and above economists’ forecasts of 64,000.

The data are at odds with other measures of the housing market which have suggested a slowing in price growth in recent months, attributed to caution among homebuyers before the budget on November 26.

A report by the Royal Institution of Chartered Surveyors published in October quoted Timothy Shaw, of Vincent Shaw estate agents in Cambridge as saying that the housing market was in a “state of semi-paralysis”, with agencies reporting another fall in inquiries, sales, new instructions and prices in September.

It said the autumn slowdown, brought on by speculation about potential reforms to property taxes, has “become more firmly entrenched of late” .Rachel Reeves, the chancellor, has said that “higher taxes on the wealthy …will be part of the story” in the budget, with some form of property tax seen as a possibility.

Ashley Webb, UK economist at Capital Economics, said that data suggested that “homebuyers may not be as fazed by the threat of tax rises in the budget on November 26, potentially on property, as it first appeared”.

Elliott Jordan-Doak, a senior UK economist at Pantheon Macroeconomics, said that while house prices had remained subdued, they were likely to continue rising slowly over the coming months.“ Some homebuyers are taking await-and-see approach to the budget, which is weighing slightly on sentiment in the market.

“But the activity indicators holding up better than their survey-based signals suggests to us that demand remains robust,” he said. Nationwide said housing affordability was likely to improve modestly if income growth continues to outpace house price growth. It also expects borrowing costs to ease, bolstering buyer demand.

Goldman Sachs said this week that after a sharp deterioration in economic data, it expected the Bank of England to cut interest rates by a quarter point to3.75 per cent next week.

Source: The Times