Annual house price growth remained in double digits for the fifth month in a row in September, though there was a modest slowdown to 10.0%, from 11.0% in August.

House prices rose by 0.1% month-on-month, after taking account of seasonal effects.

As a result, house prices remain 13% higher than before the pandemic began in early 2020, commented Robert Gardner, Nationwide’s Chief Economist.

* Seasonally adjusted figure

Mixed picture across the UK in Q3

Regional house price data is produced quarterly and showed a mixed picture across the country in Q3 (the three months to September).

While price growth accelerated in Wales, Northern Ireland and Scotland, most English regions recorded a slowdown.

Wales was the strongest performing region with house prices up 15.3% year-on-year – the highest rate of growth since 2004.

Price growth remained elevated in Northern Ireland at 14.3%. House price growth in Scotland picked up to 11.6% in Q3, in contrast to the previous quarter when it was the weakest performing part of the UK (at 7.1%).

England saw a slowing in annual house price growth to 8.5%, from 9.9% in Q2. Price growth in northern England (North, North West, Yorkshire & Humberside, East Midlands and West Midlands) continued to exceed that in southern England (London, Outer Metropolitan, Outer South East, East Anglia and South West).

Yorkshire & Humberside was the strongest performing English region for the second quarter in a row, with prices up 12.3% year-on-year, followed by the North West, which saw an 11.4% rise.

London was the weakest performer, with annual growth slowing to 4.2% from 7.3% last quarter.

The surrounding Outer Metropolitan region, which includes places such as Luton, Watford, Sevenoaks and Woking, also saw a softening to 6.8%, down from 8.2% in Q2.”

Affordability becoming more stretched

House prices have continued to rise more quickly than earnings in recent quarters, which means affordability is becoming more stretched. Raising a deposit remains the main barrier for most prospective first-time buyers.

A 20% deposit on a typical first-time buyer home is now around 113% of gross income – a record high.

“Due to the historically low level of interest rates, the cost of servicing the typical mortgage is still well below the levels recorded in the run up to the financial crisis.

However, even on this measure, affordability is becoming more challenging.

For example, if we look at typical mortgage payments relative to take home pay across the country, it is notable that in the majority of UK regions (10 out of 13) this ratio is now above its long-run average.

By contrast, pre-pandemic, this was only the case in one region (London).

Recent price patterns suggest an element of rebalancing is occurring where most of the regions that have seen the strongest price growth are those in which affordability is still close to or below the long run average.

Outlook – still clouded

As we look towards the end of the year, the outlook remains uncertain.

Activity is likely to soften for a period after the stamp duty holiday expires at the end of September, given the incentive for people to bring forward their purchases to avoid the additional tax.

Moreover, underlying demand is likely to soften around the turn of the year if unemployment rises as government support winds down, as seems likely.

But this is far from assured.

The labour market has remained remarkably resilient to date and, even if it does weaken, there is scope for shifts in housing preferences as a result of the pandemic – such as wanting more space or to relocate – to continue to support activity for some time yet, Gardner concluded.

Quarterly Regional House Price Statistics – (Q3 2021)

Walid Koudmani, market analyst at financial brokerage XTB comments:

“While the Nationwide HPI report showed a slowdown in annual price growth from August to September, the figure remains in double digits.

Wales and Northern Ireland were the strongest performing regions in Q3, London appeared to be the worst as the prospects of economic recovery continue to drive more people towards the capital and increase demand for properties.

While the price growth appears to be easing, house prices remain around 13% higher than before the pandemic started in early 2020.”