UK House Prices Flatline as Mortgage Rates Rise

Average UK house prices stagnated in July, reaching £299,253 according to the latest index from Lloyds Bank. Annual growth slowed to 0.1%, marking the weakest rate of increase since November 2023. The stagnation is attributed to stretched affordability and rising mortgage rates, which have been pressured by global economic uncertainty and conflict in the Middle East.

Regional performance revealed a growing north-south divide. Northern Ireland saw the strongest annual growth at 7.4%, while Scotland and Wales rose by 3.6% and 1.6%, respectively. In contrast, Greater London and the south east experienced price declines of 1.3% and 2%. Analysts suggest this divergence is driven by a supply glut in the south and increased government investment and job creation in the north.

While the Bank of England maintained its base rate at 3.75%, it warned that the war in Iran could drive up inflation by year-end, potentially necessitating further rate hikes. Market activity remains constrained by a stand-off between buyers and sellers. Despite these pressures, Lloyds expects market activity and house prices to remain relatively stable for the remainder of the year, contingent on household confidence and the inflation outlook.