House prices fell in September, erasing August’s increase. But house price growth is volatile on a month-to-month basis, and growth has remained soft across the last 12 months, says professional services firm EY.
The group noted that this volatility does not seem to be primarily due to April’s adjustments in stamp duty thresholds, with indications suggesting that affordability and interest rates will drive housing market performance.
Although affordability metrics have improved a little on the back of the recent strength in wage growth, valuations remain challenging. Mortgage rates could rise in the near-term and will only fall back slowly over 2026, as we don’t think that the Bank of England will cut interest rates again until the first half of next year.
“House prices fell in September by 0.3% month-on-month as measured by the Halifax House Price Index. House prices can be volatile from month-to-month and September’s fall reverses August’s 0.2% increase and ends a run of three consecutive months where house prices have risen,” said Matt Swannell, Chief Economic Advisor to the EY ITEM Club.
“September’s data continues to point to very modest house price gains over the last twelve months. House prices are 1.3% higher than last year, down from August’s 2.0% annual growth rate.”
Swannell noted that house prices have had a very mixed year so far as some transactions were brought forward ahead of April’s change in stamp duty thresholds, before a temporary lull in activity.
“But the housing market picked back up over the summer. Housing transactions have risen to be above the level seen last year and mortgage approvals are back to tracking their pre-pandemic level.
“With the effects of the stamp duty change slipping into the rear-view mirror, the housing market will likely be driven by more fundamental factors such as affordability and mortgage rates.”
Swannell said that the recent strength of pay growth has improved affordability slightly, although valuations continue to look stretched.
“However, slowing real income growth and mortgage rates that could be set to rise in the near-term will hamper demand. All told, 2026 is expected to be another year of modest house price growth as the Bank of England eventually restarts interest rate cuts in the first half of the year.”
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