There was no change in house prices during October, according to Nationwide. This meant annual growth fell to 0.5%, down from 0.8% in September. Our new forecasts expect higher mortgage rates to push annual growth to zero by the end of the year.

Mortgage rates have climbed to their highest level in almost three years. Annual inflation rose to 3.5% in September and is expected to peak at 4.0% in early 2027. Increased concern around inflation means that the Bank of England is likely to follow November’s rate hike with another in February. This is pushing up mortgage rates. Moneyfacts reported average two- and five- year fixed rate mortgages at 6.0%, up from 4.9% in January. At this level lenders have largely priced in the expected rate rises, so mortgage costs may not increase much further. The average mortgage product shelf life now sits at just 16 days, the lowest level since 2023.

Higher mortgage rates are leading to a reduction in activity that will persist in 2027. Completed transactions are down -5% on an annual basis to September, while more forward-looking annual sales agreed (net of fall throughs) are down -7.5% to October. Mortgage approvals were -19% down on an annual basis in September and below 60,000 for the fifth consecutive month. This indicates that completed transactions, which lag mortgage approvals by 4-6 months are likely to remain suppressed into the first half of 2027.

All signs point to a recovery being pushed out to 2028. We expect house prices to fall by -1.5% in 2027 due to continued high mortgage rates because of the Iran War. Several factors over the medium term should prevent prices falling further than this, however. Interest rates are set to fall during 2028, and house prices are at their lowest level relative to incomes for a decade. The labour market remains robust and first-time buyer numbers are strong. Lower mortgage rates are the key factor, however. So, an easing of inflationary pressure of high oil prices and continued political stability are important.

Scotland and the North West saw the most house price growth, according to more localised data from July. South Ayrshire (11.6%), East Dunbartonshire (10.0%) and East Ayrshire (8.7%) saw the highest annual growth. At the other end of the spectrum was central London, with Kensington and Chelsea (-9.2%), Camden (-8.5%) and Westminster (-8.4%) seeing the largest falls.