UK House Prices Are Rising Slowly

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What's going on?

Well, its something. House prices in the UK rose at a better clip in October than the previous month, an influential report showed on Wednesday. But the annual growth rate is still only about half what it was in 2016…

What does this mean?

House prices were 2.5% higher in October compared to a year ago, a slight increase in the annual growth rate from the previous month, according to the Nationwide House Price Index. On the one hand, Brits are feeling a squeeze on their wallets, which is weighing down house prices (as people have fewer savings to spend on a house). On the other hand, low mortgage rates, strong job growth (UK unemployment is at its lowest level in over 40 years!) and a shortage of homes on the market are all pushing house prices up. Overall, its a mixed bag.

Why should I care?

For you personally: The majority of existing mortgages are unlikely to be impacted by an interest rate hike for now.

All else equal, higher interest rates mean higher mortgage rates. The report said the expected interest rate hike by the Bank of England this week would have a limited impact, adding only 15 a month to an average mortgage, and immediately affecting only the 40% of mortgages on variable rates (which change in line with interest rates). However, even fixed-rate mortgages will re-calibrate eventually theyre typically only fixed for a few years. Also, higher interest rates would affect virtually all new mortgages.

The bigger picture: There is a growing narrative about UK house price growth slowing down, despite the small uptick in October.

Also on Wednesday, property firm JLL released forecasts indicating only 1% growth next year in UK house prices, and a fall in London, citing Brexit as a near-term drag (e.g. if companies move employees to other European countries, fewer people would buy houses). A few months ago, another closely watched house price index showed prices were growing at their slowest pace in four years.

Originally posted as part of the Finimize daily email.

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