UK House Prices Reach New High in October Despite Economic Turmoil

HASTINGS, ENGLAND - AUGUST 05: Rows of houses on August 05, 2020 in Hastings, England. The UK's housing market has slowly reopened after months of pandemic-related restrictions that largely halted the showing and selling of homes. Photo by Dan Kitwood/Getty Images

House prices in the UK hit a new record high in October despite the continuing uncertainties in interest rates following financial turmoil triggered by the government’s mini-budget.

Britain’s housing market had already been showing signs of cooling after a more than 20 percent surge in prices since the start of the COVID-19 pandemic as the cost of living rose and the Bank of England steadily increased interest rates.

But former Chancellor Kwasi Kwarteng’s mini-budget, which included £45 billion ($51 billion) of unfunded tax cuts, made things worse as it rattled the markets, causing the pound to fall and mortgage rates to jump significantly higher.

Britain's then-Chancellor of the Exchequer Kwasi Kwarteng walks outside Number 10 Downing Street, in London on Sept. 6, 2022. Toby Melville/Reuters

Despite this, the average UK house price hit a new record high of £371,158 ($421,654) in October, according to property website Rightmove.

Across Britain, the average asking price on a home increased by £3,398 month-on-month, as shortages of property for sale are continuing to underpin prices, the website said.

Softening Demand

But there are signs that some house hunters, particularly first-time buyers, are sitting it out after seeing mortgage rates surge.

The rapidly changing mortgage rates are understandably causing some new movers to pause their plans and wait to see how the next few weeks unfold, Rightmove said.

While buyer demand is still up by 20 percent compared with 2019 levels, it has been 15 percent lower in the past two weeks than in the same fortnight last year, the website said.

A person walks past the Bank of England in the City of London financial district, in London, on June 11, 2021. Henry Nicholls/Reuters

Asking prices for homes coming to the market rose by 7.8 percent year-on-year in October, the smallest increase since January.

Tim Bannister, Rightmove’s director of property science, said: “Some aspiring first-time buyers will have had their plans dashed by the sudden nature of the mortgage rate rises, and now face a difficult situation with rents also rising, and a shortage of available homes to rent.

“Buyer demand was already starting to soften and higher interest rates were anticipated but they’ve been brought forward sharply due to market uncertainties.”

Bannister said would-be buyers faced tricky decisions now.

“It’s understandable that some new movers who have the option to wait may want a clearer view than they’re getting right now before they proceed with a major purchase such as a home,” he said.

PA Media and Reuters contributed to this report.