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House sales, prices and demand all fell in September after benchmark mortgage rates surged to their highest level in three years, squeezing household finances and inflicting fresh “pain” on the UK property market.
The Royal Institution of Chartered Surveyors (Rics) said on Thursday that its measure of buyer enquiries fell to minus 22 in September from minus 18 in August.
Agreed sales slipped to minus 18 from minus 16 over the same period, while the measure for house prices dropped to minus 32 last month from minus 28 in August, according to the closely watched survey.
The indices measure the difference between the share of estate agents reporting rising and falling enquiries, sales or prices.
The slowdown comes as higher borrowing costs and economic uncertainty are putting buyers off making purchases.
Tom Bill, head of UK residential research at Knight Frank, said: “There is pain in the post for the UK housing market as the impact of higher mortgage costs filters through the system.”
He warned that higher borrowing costs would increase downward pressure on prices and transactions in the final months of the year following the upcoming Budget.
“The situation could be exacerbated as buyers and sellers speculate about which of the recurring tax rumours ahead of the Budget prove to be true,” he added, referring to speculation of levies on capital gains, pensions and property on October 28.
The Rics survey comes as Bank of England data updated on Wednesday showed that the five-year average fixed mortgage rate with 75 per cent loan to value — a standard benchmark — rose to 4.98 per cent at the end of September.
This is higher than the 4.96 per cent reported in April and the highest figure since 2023.
Mortgage rates have risen as financial markets factored in the prospect of the BoE increasing interest rates.
The central bank is expected to raise interest rates by a quarter point from the current 3.75 per cent at its November meeting to tackle price pressures resulting from higher energy prices.
“A renewed rise in interest rate expectations has created a fresh headwind for the housing market, with buyers becoming a little more cautious and sales activity losing some momentum this month,” said Tarrant Parsons, head of market research and analysis at Rics.
Separate data published on Wednesday by Lloyds also showed that the average house price was £298,441 in September, unchanged from the same month last year.
Joe Nellis, head of economic research at the advisory company MHA, said the government’s recently announced help-to-buy measure, the “Your First Home” scheme, could provide “much-needed support for first-time buyers”.
However, rising mortgage rates were adding to broader cost of living pressures and, alongside heightened economic uncertainty, prompting many potential buyers “to delay purchase decisions”, said Nellis.
Diesel prices hit £2 a litre last week, while the price cap on UK energy bills is forecast to rise 16 per cent in January to nearly £2,000. Food inflation is also set to rise further.
“It is a difficult time, due to the cost of living crisis and the uncertain future of interest rates, which is making people a lot more cautious,” said Richard Oades, an independent chartered surveyor.
The BoE estimated this summer that higher mortgage rates since the start of the Gulf conflict would leave about 5mn households facing increased repayments by the end of 2028.
With many households uncertain or unable to buy a home, estate agents reported rising demand for rental properties, according to the Rics survey.
“Rents continue to rise,” said James Ottewell, director at Alexander Bruce Estates. They are “driven upwards by increased demand generated by potential homebuyers renting to see how the market unfolds”.