UK house prices continued their upward trajectory in September, rising for the third consecutive month and bringing average property values within a whisker of record highs.

According to data from Halifax, one of the UK’s largest mortgage lenders, house prices increased by 0.3% in September, matching the rise seen in August. Over the past 12 months, prices have climbed by 4.7%, marking the strongest rate of annual inflation since November 2022.

The average UK home is now valued at £293,399, just £100 shy of the record set in June 2022, shortly before the market was disrupted by Liz Truss and Kwasi Kwarteng’s mini-budget, which led to rising borrowing costs and a sudden slowdown in the housing sector.

Amanda Bryden, head of mortgages at Halifax, cautioned against viewing recent gains as a full recovery: “While the typical property value has risen by around £13,000 over the past year, this increase is largely a recovery of the ground lost over the previous 12 months. Looking back two years, prices have increased by just 0.4%.”

House prices surged following the end of the first lockdown as buyers sought larger homes and outdoor space in what became known as the “race for space.” However, the mini-budget at the end of September 2022 brought the market to a standstill, with soaring interest rates and increased mortgage costs stifling demand. Now, with interest rates gradually falling and the cost-of-living crisis easing, buyers are beginning to return to the market.

“Market conditions have steadily improved over the summer and into early autumn,” Bryden added. “Mortgage affordability has been easing thanks to strong wage growth and falling interest rates. This has boosted confidence among potential buyers, with the number of mortgages agreed up over 40% in the last year and now at their highest level since July 2022.”

Despite the positive signs, there remains a clear north-south divide in house price growth. In the northwest of England, prices have risen by 5.1% over the past year, while in Yorkshire they are up 4.3%. In contrast, eastern England, which includes commuter counties like Hertfordshire and Essex, has seen prices rise by just 2.3%. London, the UK’s most expensive region for housing, has seen prices rise by 2.6% year-on-year to an average of £539,238, still below the peak of £552,592 set in summer 2022.

Northern Ireland remains the region with the fastest house price growth, with prices rising by 9.7% over the past year. In Scotland, year-on-year price inflation stands at 2.1%.

Although affordability is improving with retreating mortgage rates, Bryden noted that it “remains a challenge for many.” As a result, she predicts that any further increases in house prices over the next 18 months will be “modest.”

However, some experts are more optimistic. Ashley Webb, a UK economist at Capital Economics, believes that the Bank of England will reduce interest rates quicker than expected next year, potentially leading to higher-than-anticipated house price growth. “Our view that the Bank of England will cut interest rates by more than most expect may mean house prices grow by an above-consensus 5% in 2025,” Webb said.

While the market shows signs of recovery, the coming months will be crucial in determining whether the recent upward trend can be sustained in the face of ongoing economic challenges.

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UK house prices rise for third consecutive month, nearing record highs