House Price Growth Continues to Slow as Mortgage Rates Near 6%

Published: 27 October 2026

Data covering HPI up to August 2026, private rents up to September 2026, and CPI up to September 2026. Published: 27 October 2026, one day before the Autumn Budget.

Mortgage approvals fell for the third month in a row. With fixed mortgage rates climbing to around 6%, buyers are facing higher monthly repayments and can borrow less than they could before. On top of that, many are holding off until the Autumn Budget to see what happens with property taxes, and this wait-and-see mood is slowing buyer activity and, in turn, the wider market.

In London, flat prices are down 5.0% year on year, while houses are still rising, albeit modestly. Because flats account for around half of all sales in the capital, their weakness is dragging down London’s overall figures considerably.

Price growth in London has been sluggish since the second half of 2025, and since the start of 2026 the slowdown has been especially noticeable in the flat market. A relatively high share of flats are bought as investments, so whether buyers can secure a yield that justifies current mortgage rates plays a big part in their decision to buy.

That said, the annual fall across London narrowed from 3.3% last month to 2.2%, and prices rose 0.7% month on month, so the market isn’t simply heading one way.

Turning to the rental market, rents are still up 3.8% year on year. In today’s market, rental income is becoming more important than capital growth. For investors who rely on borrowing, interest costs are a real constraint. But for cash buyers, those buying with a low LTV (loan to value: the share of the purchase price that’s borrowed), or anyone buying in areas where prices have already adjusted, the numbers could look quite different.

To make sense of this month’s market, it’s worth looking beyond whether prices are going up or down. The more useful questions are why buyers are being cautious, which property types are struggling, and how the balance between prices and rents is shifting.

Executive summary

This edition goes to press on the eve of the Autumn Budget and a week before a Bank of England meeting that markets now expect to deliver the first rate rise of this cycle. Both events sit just outside the data window, which makes this month's report a statement of position rather than a settled picture.

The data itself continues in one direction. Annual UK house price growth slowed to 0.9% in August from a revised 1.2% in July, the fourth consecutive month of deceleration. Prices rose 0.3% on the month unadjusted but fell 0.2% seasonally adjusted, the third consecutive seasonally adjusted decline. Six of the nine English regions showed slowing annual rates. Independent analysis of the full HPI file found annual price falls in 123 of Great Britain's 349 local authority areas, up from 95 in July and 73 in June. Roughly one area in three is now falling.

Rents have held their acceleration. UK average rents reached £1,406 in September, up 3.8% year-on-year and unchanged from August. England crossed £1,466 at 4.0%. The gap between rent growth and price growth is now 2.9 percentage points, the widest in this series.

The rates picture has deteriorated sharply. CPI jumped to 3.5% in September from 3.1% in August, the highest this year and above most expectations, driven by fuel. Services inflation rose to 3.7%. Average fixed mortgage rates have moved to around 6%, with the typical five-year fix rising from 5.63% at the start of September to 6.01%. Market expectation has shifted to a rate rise on 5 November.

On policy, the most consequential development is a reversal. The Chancellor has reportedly ruled out lowering the mansion tax threshold from £2 million to £1.5 million, following opposition from Labour MPs. This was the single largest policy risk identified in the September edition, and it appears to have been withdrawn before the Budget rather than confirmed in it.

Three takeaways for investors this month:

1. The financing environment has become the dominant constraint. Fixed rates near 6% against gross yields near 6% means leveraged buy-to-let on new purchases is marginal or negative before costs in most of England. Mortgage approvals fell again to 54,900 in August, the weakest in this series and the third consecutive monthly decline.
2. The London flat market is the clearest single dislocation in the data. London flats fell 5.0% annually while London houses rose. Flats are half of all London sales against roughly one fifth nationally, which is why London overall shows minus 2.2%. For investors with a long horizon and without leverage constraints, this is where the largest repricing has occurred.
3. The mansion tax threshold reversal removes a specific risk that had been weighing on prime London, though the Budget on 28 October may still contain surprises. Readers should treat this edition's policy section as a pre-Budget position statement and expect a substantive update in November.

1. Prices: headline and segment breakdown

The UK House Price Index reached 104.6 in August 2026 (January 2023 = 100), with the average UK property valued at £273,037. Annual inflation slowed to 0.9% from a revised 1.2% in July. Prices rose 0.3% on the month on a non-seasonally adjusted basis, against 0.6% in the same period a year ago, and fell 0.2% seasonally adjusted.

ONS attributed the fourth consecutive month of slowing to weaker summer price growth than in 2025, noting that annual rates slowed in six of the nine English regions. Rightmove and Zoopla have reported similar observations of slow late-summer growth.

Country-level picture

England at +0.4% has fallen to barely positive, down from +1.1% last month. Wales at +3.1% and Scotland at +2.9% have both accelerated and now grow at roughly seven times England's rate. This is a reversal of the pattern seen through the spring and is the most striking country-level divergence in this series.

Property type: the flat discount narrows slightly

The flat discount has narrowed from 5.3 to 3.7 percentage points, but this reflects detached houses weakening to +0.7% rather than flats improving. Flats remain the only segment in annual decline, now for the sixth consecutive month in this series.

Buyer and funding status

• First-time buyers: average £230,097, annual change +0.9%
• Former owner-occupiers: £336,228, annual change +0.8%
• Cash purchases: £259,131, annual change +0.5%
• Mortgaged purchases: £282,126, annual change +0.9%

All four categories now sit in a 0.5 to 0.9% band, the tightest convergence recorded. No buyer segment is outperforming.

New build versus existing stock

The new build series has reversed direction for a fourth consecutive edition, this time showing a monthly fall of 8.0%. This series has now shown monthly changes of +6.4%, +2.5%, +4.4%, and −8.0% in four consecutive releases. It carries no usable signal at current sample sizes and readers should disregard it until ONS improves coverage.

Local area detail

Independent analysis by ValuQ of the full HPI file found that 123 of Great Britain's 349 local authority areas, 35%, recorded lower average prices than a year earlier in August. That compares with 95 areas in July and 73 in June. The breadth of decline is widening faster than the headline national figure suggests, because the national average is held up by the strength in Wales, Scotland, and the North East.

2. Regional opportunity map

Three observations matter for allocation.

The northern lead is narrowing. The North East remains top at +3.2%, but that is down from +4.9% last month and it posted a monthly fall of 0.6%. The North West has slowed from +4.4% to +2.2%. The two leaders have each lost roughly two percentage points of annual growth in a single release. The northern thesis that this series has tracked since the spring is still intact in rank order, but the margin over the rest of the country has halved.

London has improved while the South East has not. London's annual decline narrowed to −2.2% from −3.3%, with a monthly gain of +0.7%. The average London price is now £15,000 below the July 2025 peak of £569,000 but £8,000 above the March 2026 low of £546,000. The South East, by contrast, sits at −0.8% and the South West has fallen to exactly 0.0%. The weakness that started in London has spread outward across the South even as London itself stabilises.

The London flat and house split explains the capital's numbers. ONS provided an unusually useful breakdown this month. London flats fell 5.0% annually while London houses rose. Because flats account for half of all London sales against roughly one fifth across Great Britain, the flat decline drives the entire London figure. An investor reading "London is down 2.2%" and an investor reading "London flats are down 5.0% and London houses are up" face very different decisions. RICS corroborates the broad picture, reporting London continuing to show a steeper rate of decline than the UK average while the North West continues to report modest growth.

3. Rental market: acceleration holds

The ONS Price Index of Private Rents shows UK average rents at £1,406 per month in September 2026, up 3.8% year-on-year. The annual rate is unchanged from August, indicating the acceleration seen over the summer has levelled rather than reversed.

With house prices up 0.9% and rents up 3.8%, the gap stands at 2.9 percentage points. This is the widest recorded in this series and the fourth consecutive month in which rent growth has exceeded price growth by a widening margin.

Country-level rents (12 months to September 2026)

England holds at 4.0% and Wales has eased from 4.3% to 4.1%, so the two are now effectively level. Scotland has slowed further to 0.7%, continuing the multi-year deceleration from the August 2023 peak of 11.7%. The Scottish combination of 0.7% rent growth against 2.9% price growth is compressing yields there materially, and Scotland's long-standing yield advantage is eroding.

The methodological caveat noted in September applies again: Scottish and Northern Irish rent data in the PIPR are predominantly advertised new lets rather than the full stock, which limits comparability.

Rents by property type (UK, September 2026)

• Detached: £1,597 per month (highest)
• Flats and maisonettes: £1,371 per month (lowest)

London average rent reached approximately £2,338 in September, up around 3.5% annually, continuing the recovery in London rent inflation noted in the September edition.

Private-sector sources continue to differ on magnitude while agreeing on direction. Zoopla, measuring new lets, reported UK rental growth of 2.6% with growth over the preceding six months running at an annualised rate of around 4%, and expects 4% to 5% by December. HomeLet reported September new-tenancy rents at £1,387, up 3.3% annually, with London at £2,272 and up 3.3%. The divergence between PIPR's 3.8% stock measure and Zoopla's 2.6% new-let measure is normal and reflects what each is designed to capture.

Industry commentary this month noted that remortgaging accounted for approximately three quarters of completed buy-to-let loans in the period, which is consistent with a market where existing landlords are refinancing rather than expanding.

Indicative gross yields

Simple gross rental yields using country averages (annualised rent divided by average house price) are as follows.

England holds at 6.0% and Scotland has compressed from 6.2% to 6.1%, narrowing the two to within 0.1 percentage points for the first time in this series.

The critical context this month is the comparison with borrowing costs. With average two-year and five-year fixed rates now near 6%, as set out in Section 5, a gross yield of 6.0% leaves no margin before voids, management, maintenance, and tax. Leveraged purchases at current rates do not work on average England figures. They may still work in specific high-yield locations, at lower loan-to-value ratios, or for cash buyers, but the national averages no longer support a leveraged acquisition case.

These figures are indicative only and take no account of the property income tax rate increase from April 2027.

4. Transaction volumes and mortgage approvals: three consecutive declines

HMRC's Monthly Property Transactions statistics showed 95,000 seasonally adjusted residential transactions in August 2026, 1.9% lower than August 2025 and 1.5% lower than July 2026. On a non-seasonally adjusted basis between July and August, volumes fell 9.8% in England, 20.1% in Scotland, 8.8% in Wales, and 4.7% in Northern Ireland.

Mortgage approvals for house purchase fell to 54,900 in August from 56,100 in July, against a six-month average of 60,100. This is the third consecutive monthly decline and the weakest reading in this series. The six-month average has fallen in each of the last four editions, from 63,300 to 61,400 to 60,800 to 60,100.

Trade commentary following the HPI release attributed part of the slowdown to Budget anticipation, with one headline noting that the Budget has slowed the market down. Agents have reported property tax speculation weighing on buyer decisions.

Investor read: the approvals series has now fallen for three consecutive months and sits roughly 15% below where it was a year ago. The lead-lag relationship points to weaker completions through the autumn and into the new year. Two distinct forces are at work: borrowing costs near 6% and pre-Budget hesitation. The second of these should resolve after 28 October, one way or another. The first will not resolve without a change in the rate outlook, which currently points the wrong way.

5. Policy, monetary, and FX backdrop

Policy: a reversal on the threshold, with the Budget still to come

This edition publishes one day before the Autumn Budget on 28 October 2026, delivered by Chancellor John Healey. Readers should treat what follows as the pre-Budget position.

The mansion tax threshold reduction appears to have been dropped. The Times reported that the Chancellor has ruled out lowering the High Value Council Tax Surcharge threshold from £2 million to £1.5 million, following opposition from Labour MPs. In the September edition this was identified as the single most consequential live item for this readership, with third-party modelling suggesting roughly half the newly affected properties would have been in London. If the reporting is accurate, that risk has been withdrawn before the Budget rather than confirmed in it. Readers should await confirmation on the day.

One detail in the reporting is worth noting. Analysis cited alongside it found there were 8,800 fewer £2 million-plus homes in England than when the mansion tax was announced in the Autumn 2025 Budget. Price falls at the top of the market have shrunk the taxable base, which is the kind of second-order effect that asset-based taxes tend to produce.

What remains legislated and unaffected by the Budget. From April 2027, property income carries separate income tax rates of 22%, 42%, and 47% under the Finance Act 2026, a two percentage point increase for individual landlords. Company landlords are unaffected. From April 2028, the High Value Council Tax Surcharge applies to English homes at £2 million or more, with annual charges of £2,500 to £7,500 payable by the owner. The OBR estimates it will raise approximately £0.4 billion in 2029-30 and affect around 165,000 households. Making Tax Digital for income tax continues its phased rollout, with the threshold falling to £30,000 from April 2027.

What remains open. Capital gains tax on residential property stands at 18% and 24% for 2026/27 with a £3,000 annual exempt amount. Reports have variously suggested increases are being modelled and that a rise has been ruled out; this is unresolved going into the Budget. The Chancellor has signalled that fiscal devolution will be a central theme, which may carry indirect implications for regional property markets through infrastructure and local funding, though nothing specific has been published. Longer-term proposals to replace stamp duty and council tax with a proportional property tax or land value tax remain outside this Parliament's timetable, with ministers denying anything is actively under consideration.

How to hold this. The pattern across the last four editions is instructive. In July this report flagged a set of proposals as a new policy variable. In August two of them were explicitly ruled out. In September the mansion tax threshold emerged as the live risk. In October it appears to have been withdrawn. Policy speculation has moved faster than policy itself, and the measures that have actually changed investor economics are the ones legislated a year ago and barely discussed since: the April 2027 income tax rise and the April 2028 surcharge. Investors are generally better served by modelling what is on the statute book than by trading around headlines.

The November edition will carry a full account of what the Budget actually contained.

Bank of England and inflation

Bank Rate stands at 3.75% following the 17 September hold, decided 6-3 with Catherine Mann, Megan Greene, and Huw Pill voting for an immediate rise to 4.00%. The next decision is on 5 November 2026, accompanied by a new Monetary Policy Report, with the final decision of the year on 17 December.

The inflation data since has moved decisively against the majority position. CPI rose to 3.5% in the 12 months to September, up from 3.1% in August and the highest rate this year. The increase was driven by fuel prices and was above most expectations. CPIH rose to 3.6% from 3.3%. Core CPI rose to 2.8% from 2.6%, and core CPIH to 3.1% from 2.9%. CPI services inflation, which the MPC watches most closely, rose to 3.7% from 3.4%. CPI goods inflation reached 3.2%, its highest since September 2023. The UK rate of 3.5% was above France at 3.4% and Germany at 3.3%.

Market expectation has shifted to a rate rise on 5 November. Commentary following the release described the figure as cementing expectations of an increase, noting that three MPC members already voted for a rise in September and that the September inflation data may persuade others. The September MPC statement had already warned that if the Middle East conflict persisted and second-round effects emerged, policy was likely to have to tighten. Inflation at 3.5% with services at 3.7% is the kind of evidence that statement anticipated.

Mortgage market implications

Fixed mortgage pricing has moved sharply. Moneyfacts data shows the average five-year fixed rate rising from 5.63% at the start of September to 6.01%, and the average two-year fixed rate from 5.59% to 5.97%. Both now sit at or around 6%. Lenders have been repricing on swap market volatility and a global bond sell-off as well as domestic rate expectations.

For investors the arithmetic is now stark. Average England gross yield is 6.0% and average fixed mortgage rates are near 6.0%. On a leveraged purchase at average figures, rental income does not cover interest with any margin for voids, management, maintenance, or tax. This does not mean buy-to-let is unviable; it means the average case no longer works and viability has become location-specific and structure-specific. Higher-yield northern locations, lower loan-to-value ratios, limited company structures, and cash purchases all change the picture. Investors should run property-specific numbers rather than relying on national averages, and should stress-test at rates above today's.

Borrowers approaching the end of a fixed term face the sharpest adjustment. Those refinancing from deals taken in 2024 or early 2026 should model a material increase in payments and check interest coverage ratio headroom before committing to a purchase.

GBP/JPY

Sterling has stabilised against the yen after the September fall. GBP/JPY traded at approximately ¥209.9 on 24 October and around ¥210.2 on 26 October. The 30-day range has been ¥208.3 to ¥211.8 and the 90-day range ¥207.5 to ¥218.3. The pair is up roughly 3.2% on a year earlier, against ¥203.3 in late October 2025.

The 2026 average to date is ¥212.85, against ¥196.94 for 2025. The 52-week range has been ¥200.17 to ¥219.49, with the high recorded on 15 July.

For yen-denominated investors, the implications are threefold.

• Entry conditions remain materially better than in July. At approximately ¥210, sterling is around 4% cheaper in yen terms than at the ¥219.49 peak, though it has given back some of the September improvement from the ¥207.5 low.
• The pair has been range-bound for roughly six weeks, which reduces the urgency that a sharp move creates but also offers no particular signal.
• Two scheduled events this fortnight could move it: the Budget on 28 October and the MPC decision on 5 November. A rate rise would ordinarily support sterling. Investors with a known GBP requirement may prefer to act before or after that cluster rather than during it.

6. What to watch in November

• 28 October: Autumn Budget. The November edition will cover it in full
• 5 November: Bank of England MPC decision with a new Monetary Policy Report. Markets expect a rise to 4.00%
• 18 November: UK HPI data for September 2026
• 18 November: ONS rents and prices bulletin (October data) and CPI for October 2026
• End of November: HMRC transactions data for October 2026

Key questions for next month's edition are as follows. What did the Budget actually contain for property, and did the mansion tax threshold reversal hold? Did the MPC raise on 5 November, and if so what did it signal about the path? Does the seasonally adjusted price decline extend to a fourth month? Does the breadth of local area declines keep widening beyond 35% of areas? And do mortgage approvals stabilise once Budget uncertainty clears, or does the rate environment keep them falling?

Methodology and sources

Disclaimer

This article is provided for general informational purposes only and does not constitute investment, financial, legal, or tax advice, nor a recommendation or solicitation to buy, sell, lease, or invest in any property, region, or financial product. The information is based on publicly available sources, including official UK government and Bank of England publications, considered reliable at the time of publication. However, data accuracy, completeness, and timeliness cannot be guaranteed. Recent UK HPI and ONS rental figures are provisional and subject to revision. This edition was published before the Autumn Budget of 28 October 2026 and before the Bank of England decision of 5 November 2026; descriptions of policy and rate expectations reflect the position at the time of writing and may have been overtaken by events. Descriptions of political and policy developments reflect statements, proposals, and reporting in the public domain and should not be taken as predictions of enacted legislation, nor as an endorsement of any political position. Third-party modelling and analysis is cited as published and does not represent government forecasts. Past performance is not a reliable indicator of future results. Property values, rental yields, interest rates, taxation (including Stamp Duty Land Tax and related regimes), and exchange rates can fluctuate significantly. Readers are strongly encouraged to conduct their own due diligence and seek independent professional advice from qualified advisers before making any investment decision.