(Oct 21): UK home prices extended their decline in August, according to official figures showing that surging borrowing costs are sapping demand. 

The Office for National Statistics (ONS) said average values dropped a seasonally adjusted 0.2%, falling for a third straight month. 

House prices were just 0.9% higher than a year ago, reaching £273,000 (RM1.49 million). On an annual basis, values are growing at their slowest pace since March, shortly after the Middle East conflict began.

“Cracks in the housing market became wider in August,” said Rob Wood, chief UK economist at Pantheon. “We expect house price inflation to hover around current rates for the rest of the year, averaging 1% in 4Q with risks to that call skewed to the downside.”

The housing market is under pressure from the Iran war’s economic fallout. Key mortgage rates have climbed close to 6%, and there’s little prospect of immediate relief with the Bank of England expected to start raising interest rates in November in a bid to get inflation back on track. 

An earlier survey of property surveyors showed prospective buyers are also worried that Chancellor of the Exchequer John Healey will raise taxes at his budget next week. Real estate agents expect prices to decline further in the near-term, with a particularly bleak outlook in London.

Properties in the capital, where prices are still double the UK average at £554,000, suffered the largest annual declines out of any English region, the ONS said. London values fell 2.2% in the year to August, due to sharp declines in the price of flats. 

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