Nationwide: UK house prices slowed in October

Nationwide – Market weathers Budget uncertainty

Nationwide’s latest index shows that house prices climbed by 0.1% in October versus the previous month, although this monthly rate of growth slowed from 0.6%.

On an annual basis they increased by 2.4%, with this annual rate of growth again slowing from 3.2% the previous month.

Robert Gardner, Nationwide’s Chief Economist, said, “The price of a typical UK home increased by 2.4% year on year in October, though this represented a modest slowdown from the 3.2% pace recorded the previous month. House prices rose by 0.1% month on month in October, after taking account of seasonal effects.

“Housing market activity has remained relatively resilient in recent months, with the number of mortgage approvals approaching the levels seen pre-pandemic, despite the significantly higher interest rate environment.

“Solid labour market conditions, with low levels of unemployment and strong income gains, even after taking account of inflation, have helped underpin a steady rise in activity and house prices since the start of the year.

“Providing the economy continues to recover steadily, as we expect, housing market activity is likely to continue to strengthen gradually as affordability constraints ease through a combination of modestly lower interest rates and earnings outpacing house price growth.

How much of an impact will the expiry of the stamp duty holiday have on activity levels?

“The Chancellor confirmed that the temporary increase in the nil rate stamp duty thresholds (in England & Northern Ireland) would expire on 31 March 2025 and revert back to their previous levels, as had originally been set out by the previous government.

“From that point, for first time buyers purchasing a property of under £500,000, the nil rate band threshold will fall to £300,000 from £425,000 at present, while for other residential buyers, the nil rate band threshold will decline to £125,000, from £250,000.

“The main impact of the stamp duty changes is likely to be on the timing of property transactions, as purchasers aim to ensure their house purchases complete before the tax change takes effect. This will lead to a jump in transactions in the first three months of 2025 (especially March), and a corresponding period of weakness in the following three to six months, as occurred in the wake of previous stamp duty changes.

“However, the swings in activity are likely to be somewhat less pronounced, in this instance, given that the stamp duty reduction has been in place for some time and its planned expiry was well known. Affordability is also still relatively stretched at present as a result of the higher interest rate environment, which is acting to dampen housing market activity more generally. Nevertheless, determining the underlying strength of the market will become more challenging until this period of volatility passes.

“Data for the year to June 2024 suggests that the stamp duty change will affect around one in five first time buyers[1], though the impact will vary significantly across the country, largely as a result of the difference in house prices across the UK (see chart above).

“The largest effects are likely to be in the South East of England, where 40% of first-time buyers paid between £300,000 and £425,000 for their homes, where the change will increase cost of moving for the affected first-time buyers by £2,900 on average. The areas least affected are Yorkshire & The Humber, the North of England and Northern Ireland, where less than 10% of first-time buyers paid between £325k and £425k for their homes. Moreover, as the chart shows, the additional tax paid by affected first time buyers in these regions will, on average, be lower than in London and the South East.

“The Chancellor also announced an increase in the higher rate of stamp duty for additional dwellings by 2 percentage points to 5%, which took effect on 31 October. Based on data for the year to June 2024, this would affect around 194,000 transactions, around one in five residential transactions in England & Northern Ireland. We estimate for a typical buy to let purchase, this would add approximately £4,000 to stamp duty costs. Consequently, this may dampen demand in this part of the housing market.”