Annual house price growth in the United Kingdom fell to half its previous rate in September, with the typical home now valued at £274,251. The slowdown reflects mounting pressure from geopolitical tensions and elevated borrowing costs that have deterred prospective buyers from entering the market.
According to Nationwide, residential prices increased by just 0.8% in the year to September, down sharply from 1.6% growth recorded in the previous month. On a month-to-month basis, accounting for seasonal patterns, prices declined by 0.2%. This represents the most subdued annual expansion since December of the previous year.
The housing market has remained sluggish throughout recent months, with conflict in the Middle East continuing to disrupt energy supplies and push commodity prices higher. These developments have kept inflation concerns elevated, prompting financial markets to anticipate further interest rate rises from the Bank of England. The resulting pressure on mortgage pricing has made home purchases substantially more expensive for borrowers.
Robert Gardner, chief economist at Nationwide, attributed the slowdown directly to external shocks:
Geopolitical tensions remain high, with the conflict in the Middle East exerting upward pressure on energy prices, fanning inflation concerns. This in turn has led to mounting financial market expectations of Bank [of England] rate increases, which has maintained upward pressure on the market interest rates which underpin mortgage pricing.
Mortgage affordability has deteriorated markedly. According to recent mortgage market analysis, the average two-year fixed rate reached 5.93%, while the average five-year fixed rate climbed to 5.94%—both representing the highest levels in several months. These rates have now exceeded the 5.9% threshold that had previously marked the upper boundary of recent market conditions.
Which regions have been hit hardest?
Regional performance has diverged significantly across the United Kingdom. East Anglia experienced the steepest decline, with annual house prices falling 0.7%. Beyond East Anglia, Nationwide identified three additional regions where prices contracted year on year: the Outer Metropolitan area, South West England, and the East Midlands. Northern Ireland stands as the sole bright spot, recording the strongest annual growth at 5.9%.
Has the slowdown affected buyer activity?
Transaction volumes have declined noticeably. Sales agreed in September were 9% lower than in the same month of 2025, signalling a substantial pullback in purchasing decisions as higher borrowing costs deter prospective homeowners.
Could affordability improve despite higher rates?
Gardner suggested that the moderation in house price growth may offer some relief to buyers, even as mortgage rates remain elevated.
Underlying affordability is improving, as house price growth has been well below earnings growth for some time. These gains have been only partially offset by higher mortgage rates. This suggests that activity should regain momentum in the quarters ahead, providing the energy shock fades and confidence returns – especially if market interest rates fall back to pre-conflict levels.
The Bank of England held its benchmark rate steady at 3.75% on 17 September, marking the sixth consecutive decision to maintain borrowing costs at that level. Market expectations for future rate movements remain sensitive to developments in energy markets and inflation data.
What happens next?
The Bank of England's next scheduled interest-rate decision is due on 5 November 2026. Policymakers will assess whether inflationary pressures from geopolitical disruptions warrant further tightening or whether economic weakness justifies a shift toward easing. The outcome will significantly influence mortgage pricing and, by extension, the trajectory of the housing market in the months ahead.
