(Bloomberg) — UK house prices hit record levels in October, according to a top mortgage lender, suggesting the boost from cheaper mortgages offset any anxieties homebuyers had ahead of Labour’s budget at the end of that month.
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Halifax said the average price of a home climbed 0.2% to £293,999, ($380,200) £492 above a previous all-time high reached in June 2022. Prices were up 3.9% from a year ago, gaining at a slightly slower pace than in September.
The housing market is shifting from recovery to growth after defying predictions of a crash in 2023. Prospective buyers are emerging as real incomes continue to grow and interest rates begin to come down. That’s helped partly offset worries over tax rises confirmed in Labour’s Oct. 30 budget, — including raising a surcharge on the stamp duty charged for second homes, and allowing a discount on the same tax for all purchases to end from the coming April.
“Despite the affordability challenge, market activity has been improving. The number of new mortgages agreed recently reached its highest level in two years,” said Amanda Bryden, head of mortgages at Halifax. “This aligns with average mortgage rates dropping steadily since spring coupled with continued positive income growth.”
The Bank of England is expected to cut interest rates for a second time at noon on Thursday, providing a further boost to affordability.
Still, market expectations of another cut in December have largely dissipated due to worries that the spending and borrowing spree outlined by Chancellor of the Exchequer Rachel Reeves in her budget will fan inflation. That could keep mortgage costs higher for longer and muddy the housing market’s recovery.
As budget uncertainty passes, households are left to process the UK’s biggest tax hike in 31 years unveiled by Labour as it seeks to fix public services and spur investment. While businesses and the wealthy bore the brunt of the extra taxation, the worry is that companies will slow pay rises and cut hiring to cope with higher costs. That would drag down the recent growth in real incomes that’s helped bring buyers back into the market.
Separate figures earlier this month from lender Nationwide Building Society showed house prices barely grew in October as buyers retreated ahead of Labour’s fiscal plans. Budget jitters also hit homebuilding, with activity shrinking for the first time in four months, according to an S&P survey of private companies.