House prices recorded a surprise 0.9% increase last month despite the doldrums in the property market, according to latest figures from Nationwide.
The average cost of a home in the UK went up from £257,808 to £259,423 during the month, said the building society. That reduced the annual rate of fall from 5.3% to 3.3%.
The figures come the day before the Bank of England is expected to leave interest rates unchanged at 5.25%. Agents say sales activity is depressed but prices have held up more robustly than expected.
Robert Gardner, Nationwide’s Chief Economist, said: “October saw a 0.9% rise in UK house prices, after taking account of seasonal effects. This resulted in an improvement in the annual rate of house price growth to -3.3%, from -5.3% in September.
“Nevertheless, housing market activity has remained extremely weak, with just 43,300 mortgages approved for house purchase in September, around 30% below the monthly average prevailing in 2019.
“This is not surprising as affordability remains stretched. Market interest rates, which underpin mortgage pricing, have moderated somewhat but they are still well above the lows prevailing in 2021.
“The uptick in house prices in October most likely reflects the fact that the supply of properties on the market is constrained. There is little sign of forced selling, which would exert downward pressure on prices, as labour market conditions are solid and mortgage arrears are at historically low levels.”
Alice Haine, Personal Finance Analyst at investment platform Bestinvest, said: "More optimistic interest rate expectations are already filtering through to the mortgage market, with average two- and five-year mortgage fixed rates easing from their summer peaks as lender slash deals in a bid to attract new business.
"While this seems like good news for first-time buyers, the drag effect from 14 interest rate rises is still filtering through to existing homeowners. The effective interest rate – the actual interest paid - on newly drawn mortgages rose 19 basis points in September to 5.01% - a sharp jump on the 1.78% seen in September 2021.
"With average rates on outstanding mortgages currently at 3.14%, it highlights how many borrowers are yet to reach the end of cheaper deals taken out before the rapid rate hiking cycle began.
John Choong, Senior Equity Research Analyst at Investing Reviews: "Big questions remain as to whether house prices will continue falling, but recent trends from both Nationwide and Halifax have certainly shown some mildly encouraging signs that the housing market correction may be close to the bottom. This has been confirmed with this latest data, which is without doubt a bricks and mortar curveball.
"The fact that mortgage rates are also reducing on a weekly basis is starting to dissipate the affordability headwinds. Sentiment is also picking up as people feel that the interest rate peak may have been reached. With real wages also now trending positive, this should help to prop house prices up until demand returns in earnest."
Tom Bill, Head of UK Residential Research at Knight Frank, said: “Sentiment in the UK housing market is weak but unlike the early months of Covid or the period following the mini Budget, there is no single cause.
"There is financial pain from higher mortgage rates, hesitancy as the Bank of England struggles to contain inflation, and uncertainty as a general election looms and conflict persists in the Middle East. It means the seasonal bounce in activity didn’t happen this autumn, although price falls have been kept in check by weak supply. We expect UK prices to fall by 7% this year and 4% next year as inflation comes under control and mortgage rates stabilise.”
