Real estate market shows a surge of 2.9%; will this upward trend persist?
UK House Prices and Interest Rates: A Tumultuous Relationship
In the aftermath of the Autumn Budget, markets have become more bearish on the prospect of further interest rate cuts, causing a stir in the housing market. This shift in sentiment, coupled with the recent hike in stamp duty on second homes, has created a challenging landscape for both buyers and sellers.
The housing market has been a subject of concern, with the stamp duty hike increasing the risk of decreasing rental supply and pushing rents higher at a time when the rental market is already at a crisis point. This is especially true in regions like Northern Ireland, which is experiencing the fastest house price growth of the UK regions, with prices up 6.2% on an annual basis in the third quarter.
Despite the recent decrease in the Bank of England's interest rate to 4% in August 2025, the full impact on the UK house price recovery is not yet clearly observable. Lower interest rates generally reduce mortgage costs, which can stimulate housing demand and contribute to house price recovery. However, the mortgage market is being affected by the expected longer duration of higher inflation, causing economists and investors to temper their expectations for further interest rate cuts.
In September, house prices rose by 2.9% on an annual basis, reaching an average of £292,000. Prices in London fell by 0.5% compared to a year ago, with the average house now costing £525,586. The North West of England saw the fastest house price growth at 6.5%. Scotland, England, and Wales followed closely, with prices rising by 5.7%, 2.5%, and 0.4% respectively.
However, the monthly trend shows a slight dip, with prices falling by 0.3% on a monthly basis (September versus August). This could be attributed to the nervousness in the housing market caused by the Autumn Budget, potentially dampening house price growth in September.
The hike in stamp duty on second homes, with the surcharge rising from 3% to 5%, has created another hurdle for buy-to-let investors, who complain that the change makes the market less profitable in recent years. First-time buyers, on the other hand, face a challenging landscape, with prices for starter homes rising annually but falling slightly month-on-month.
Affordability remains a key theme throughout the market, particularly for first-time buyers. The increase in mortgage rates, despite the recent base rate cut on 7 November, adds to existing affordability pressures for those looking to buy. Residential transactions were 9% higher in September 2024 than September 2023, on a seasonally-adjusted basis, suggesting that despite the challenges, the housing market remains active.
In conclusion, the UK housing market continues to navigate a complex landscape, with the impact of recent interest rate cuts and the Autumn Budget yet to be fully realised. The broader economic context of slowing growth and disinflation remains critical in shaping housing market dynamics. Buyers and investors alike will need to keep a close eye on these developments as they unfold.
[1] Bank of England Monetary Policy Report - September 2024 [2] HM Treasury Autumn Budget 2024 [3] Office for National Statistics UK Economic Review - October 2024
- Regarding personal-finance and investing in real-estate, the increase in stamp duty on second homes, from 3% to 5%, has made the buy-to-let market less profitable for investors.
- In the realm of finance and investing, the uncertain impact of the Bank of England's interest rate cuts and the Autumn Budget is causing buyers and investors to closely monitor the developments in the UK housing market.
- For those interested in personal-finance and investing, the current turbulent relationship between UK house prices and interest rates presents a challenging landscape, especially for first-time buyers, due to affordability pressures arising from the increase in mortgage rates and decreasing house price growth.
