Higher-for-longer interest rates will keep pressure on UK house prices

(Alliance News) - UK house prices fell again in September, according to the Halifax house price index released on Friday, with analysts warning that high interest rates in the UK will keep prices under pressure.

Halifax said average house prices in the UK fell by 0.4% in September from August, slowing from a 1.8% decline in August from July. Market consensus cited by FXStreet had expected house prices to have declined by 0.8% on a monthly basis.

Annually, prices fell by 4.7% in September, accelerating from a 4.5% decline in August.

The average UK home now costs GBP278,601, around the level seen in early 2022. It is a GBP1,200 reduction from August.

Andrew Wishart, senior property economist at Capital Economics, noted this was the sixth consecutive monthly decline in the Halifax index, painting a "significantly more downbeat" picture than the similar Nationwide index, released earlier this week.

On Monday, fellow mortgage lender Nationwide reported that UK housing market activity "remains weak" as lofty borrowing costs are still putting off would-be buyers.

According to the Nationwide house price index, house prices declined 5.3% on-year last month, following a fall of the same pace in August.

On a monthly basis, prices were flat in September, following a 0.8% decline in August from July.

Looking ahead, Capital Economics' Wishart said he continues to think that UK mortgage rates will stay around their current high level until next summer, meaning that demand will stay weak at the same as the amount of homes up for sale is rising to "more normal" levels.

"The result will be further house price declines, of 5% to 6% on top of the 5% we have had already," he said.

Victoria Scholar, head of investment at interactive investor, shared a similar view: "With interest rates set to remain higher for longer, there's likely to be ongoing pressure on house prices ahead."

However, it wasn't all doom and gloom in Scholar's view. She argued that an "even steeper" downturn in property price may still be stemmed, as there remains a shortage of housing supply in the UK.

In addition, she noted that with the Bank of England keeping rates on hold at its most recent decision, strong wage growth in the UK and recent cuts to fixed rate mortgage deals, conditions have been "improving slightly" this month.

By Heather Rydings, Alliance News senior economics reporter

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