Executive Summary
- British house prices unexpectedly rose in October by 0.3% monthly and 2.4% annually, surpassing economists’ forecasts despite elevated mortgage rates.
- Nationwide’s Chief Economist noted the market’s resilience against subdued consumer confidence and a weakening labor market, with mortgage approvals also higher than expected.
- Future affordability is projected to modestly improve if income growth outpaces house prices and borrowing costs moderate, supported by strong household balance sheets with the lowest debt-to-income ratio in two decades.
The Trajectory So Far
- British house prices unexpectedly rose due to resilient demand, evidenced by higher-than-expected mortgage approvals, and are supported by strong household balance sheets, with the lowest debt-to-disposable income ratio in two decades, allowing the market to defy elevated mortgage rates and broader economic uncertainties.
Assessing Risk and Value
- The unexpected resilience in British house prices, despite high mortgage rates and broader economic uncertainties, signals a potentially robust market supported by strong household balance sheets and higher-than-expected mortgage approvals. For investors, this suggests underlying value and a potential for sustained demand, especially if income growth outpaces house prices and borrowing costs moderate. However, investors should remain cautious as risks persist from elevated mortgage rates, subdued consumer confidence, and potential future tax increases, which could temper future growth or introduce volatility.
Expert Predictions and Forecasts
- Nationwide’s Chief Economist, Robert Gardner, views the housing market as resilient despite high mortgage rates and anticipates modest improvements in affordability and continued buyer demand, driven by strong household balance sheets and potential moderation in borrowing costs.
- Reuters’ polled economists had expected no monthly change and a lower annual increase of 2.3%, suggesting they underestimated the actual strength observed in the market.
- Conversely, some other housing market indicators suggest a slowdown in price growth, which is linked to buyer caution ahead of the finance minister’s budget and expected tax increases.
British house prices unexpectedly rose in October, surpassing economists’ forecasts and indicating a resilient housing market despite elevated mortgage rates and looming budget changes. Lender Nationwide reported a monthly increase of 0.3% and an annual rise of 2.4%, accelerating from September’s figures.
The monthly increase followed a 0.5% rise in September. Annually, prices were 2.4% higher than a year earlier, up from September’s 2.2% increase. These figures exceeded Reuters’ polled economists, who had anticipated no monthly change and a 2.3% annual increase.
Robert Gardner, Nationwide’s Chief Economist, commented on the performance, highlighting its resilience against subdued consumer confidence and a weakening labor market. He noted that mortgage rates are more than double pre-Covid levels, and house prices remain near all-time highs.
Further supporting signs of demand, Bank of England data released earlier in the week showed a higher-than-expected number of mortgage approvals in September. However, some other housing market indicators have pointed to a slowdown in price growth, which has been linked to buyer caution ahead of finance minister Rachel Reeves’ budget on November 26, expected to include tax increases.
Gardner suggested that housing affordability is likely to modestly improve if income growth continues to outpace house price growth, as Nationwide anticipates. He also projected a further moderation in borrowing costs if the Bank of England’s benchmark rate is lowered in the coming quarters.
These factors are expected to bolster buyer demand, particularly given the strength of household balance sheets. Gardner pointed out that the ratio of household debt to disposable income is currently at its lowest level in two decades.
Market Resilience and Future Outlook
The latest data suggests a surprising robustness in the British housing market, defying high borrowing costs and broader economic uncertainties. While caution persists among some homebuyers, Nationwide’s analysis points to potential future improvements in affordability and continued demand, supported by strong household finances.
