House price growth picks up pace with 2.8% annual rise

House prices jumped by 1.5% in August, bringing the annual growth rate to 2.8%, according to official figures.

The average price of a property in the UK now sits at £293,000, an £8,000 uplift compared to a year ago.

The Land Registry house price index reveals that annual house price inflation was highest in the North West, where prices increased by 4.6% in the 12 months to August. The South West was the English region with the lowest annual inflation, where prices rose by just 0.8%.

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Jeremy Leaf, estate agent and a former RICS residential chairman, says: “This most comprehensive of all house-price surveys, as it includes cash and mortgage transactions, demonstrates once again considerable market strength despite reflecting activity over the past three months at a time of economic and political turbulence.

"Today's larger-than-expected fall in inflation, added to yesterday's wage growth figures, will raise expectations of further cuts in mortgage costs and be a welcome shot in the arm to buyer confidence."

Other house price indices have also painted a positive picture over the past few months. The latest Halifax data shows average UK house prices rose 0.3% on a monthly basis in September, with average prices up 4.7% annually.

Meanwhile, Nationwide reports that the average house price rose by 0.7% in September and by 3.2% annually.

However, with mortgage rates starting to rise, and uncertainty in the run-up to Labour’s first Budget on 30 October, will this positive sentiment last, or could house prices start to stagnate, or even fall?

Where have house prices risen the most?

The official house price index from the Land Registry and the Office for National Statistics reveals that of the four UK regions, values rose the fastest in Northern Ireland.

Average house prices in Northern Ireland jumped 6.4% over the past year to reach £185,000. This was followed by 5.4% growth in Scotland, with the average property now costing £200,000. In Wales, house prices rose 3.5% to reach £223,000. Meanwhile, in England prices increased 2.3% to £310,000.

In terms of English regions, the North West saw the fastest annual house price growth (4.6%), followed by Yorkshire and the Humber (4.4%), and then the West Midlands (2.6%). 

The slowest house price inflation was seen in the South West (0.8%), followed by London at 1.4%. The average home in the capital now costs £531,212.

However, on a monthly basis, London performed better, with a 2.2% boost in average prices, the third-highest increase in England (behind only the North West and Yorkshire and the Humber).

Amy Reynolds, head of sales at London-based estate agency Antony Roberts, says: “Considering the high cost of living, stamp duty and mortgages, it is surprising the housing market is holding up as well as it is, but in London in particular this is down to limited supply coupled with plenty of demand.”

She adds that “healthy prices are being achieved on plenty of properties, and many are achieving asking price and even over, if the property is particularly desirable”.

Will this enthusiasm among buyers continue?

Mortgage rates are a big factor in how enthusiastic property buyers feel, and the sort of offers they are likely to make.

While rates have been falling over the past few months following the base rate cut in August, in the last week several lenders have actually increased mortgage costs.

They include Coventry Building Society, Santander, TSB and Barclays. This was largely due to swap rates bouncing back up, on the back of Budget uncertainty and global unrest. 

The average two-year fixed mortgage rate is now 5.39% (16 October), according to Moneyfacts, up from 5.37% yesterday.

However, with September inflation slowing to 1.7%, experts expect the Bank of England to cut the base rate at its meeting next month, which should trigger another fall in mortgage rates.

Karen Noye, mortgage expert at the wealth manager Quilter, says the “inflation data will give prospective buyers and those looking to remortgage a glimmer of hope that the Bank of England will continue to cut interest rates at its next monetary policy meeting”. 

She adds: “Lower mortgage rates would translate to more affordable financing options for prospective buyers, which should boost buyer confidence and help buoy the market further.”

How could the Budget affect the housing market? 

Buyers and sellers will be waiting to see if Rachel Reeves’s Budget brings any housing-related announcements, such as changes to stamp duty, capital gains tax or any incentives for first-time buyers.

Could the Budget derail the housing market recovery? Noye thinks we could see buyers becoming more cautious in the run-up to the Budget, which will take place in a fortnight’s time.

She adds: “Any significant fiscal changes could impact mortgage affordability, and any economic hiccup could cause prices to stagnate or even reduce once again.”

According to Ben Nichols, managing director at the mortgage firm RAW Capital Partners, the Budget “adds complexity, with rumours of tax and regulatory reforms”.

But he says it’s important to remember that the core fundamentals of the market - strong demand and limited supply - remain intact. “Therefore, we do not expect any significant slowdown in activity following Rachel Reeves’ speech, as the outlook for the BoE’s base rate should have a greater influence on people’s plans. Under these conditions, the growth trajectory should persist.”