UK House Prices Slump as Borrowing Costs Bite

The British housing market has seen its weakest annual price growth in nearly two years, according to new data from Nationwide Building Society. House prices rose by just 0.8% annually in September, compared to the same period last year. This is a significant slowdown from the previous month's 1.6% annual increase.

The monthly decline of 0.2% was also unexpected, and marks the joint-fastest fall since May. The higher borrowing costs caused by the war in Iran have weighed on demand, according to Nationwide's chief economist, Robert Gardner. He notes that market activity and house prices have remained subdued due to the uncertain economic backdrop.

The Bank of England is expected to raise its benchmark interest rate in November, which will likely maintain upward pressure on mortgage rates. This has led to increased borrowing costs for homebuyers, contributing to the slowdown in price growth. To help address this issue, Prime Minister Andy Burnham has announced a new loan programme for first-time buyers.

The programme will offer loans of up to 20% of a property's value to homebuyers with a 2.5% deposit. Further details are expected to be confirmed in the government's budget later this month. Despite these efforts, it remains to be seen whether they will be enough to boost demand and stimulate price growth.