British house prices rose at their slowest pace in more than five years, according to data published by mortgage lender Nationwide.
Annual house prices rose 1.6% in October, down from 2% in September, the Nationwide Building Society said.
Before Britain decided to leave the European Union in June 2016, house prices based on the Nationwide’s index were rising by about 5% a year.
Since then, many households have seen their spending power crimped by inflation that has risen faster than pay.
Robert Gardner, Nationwide’s chief economist, said: “The squeeze on household budgets and the uncertain economic outlook is likely to have dampened demand, even though borrowing costs remain low by historic standards and unemployment is at 40-year lows.
“We continue to expect house prices to rise by around 1% over the course of 2018.”
A year ago, the Bank of England raised interest rates for the first time since the global financial crisis and followed this with a further rise in borrowing costs to 0.75% in August.
The BoE is widely expected to keep rates on hold until Britain has left the EU amid concerns of a disorderly exit.
Mr Gardner said looking further ahead, much will depend on broader economic conditions.
“If the uncertainty lifts in the months ahead, there is scope for activity to pick up throughout next year,” Mr Gardner said.
“The squeeze on household incomes is already moderating and policymakers have signalled that interest rates are only expected to rise at a modest pace and to a limited extent in the years ahead.”
Mr Gardner said housing market transactions remain subdued with little change in activity in recent months.
“There were 1.2 million transactions in the 12 months to September 2018, still 30% lower than the levels seen in the same period in 2007.
“There has, however, been a significant change in the pattern of housing transactions over the past decade.”
He said: “Cash purchases have remained buoyant during the recovery period. This is partly due to the growth of the private rental sector, where the majority of transactions are in cash.
“Demographic trends also partly explain this trend, where an increasing proportion of people own their homes outright and therefore transact in cash when they move.
“Recent years have seen a recovery in first-time buyer transactions, which are now broadly in line with pre-crisis levels.
“The improvement in credit availability, historically low interest rates, together with a steady improvement in labour market conditions in recent years have all helped boost activity.”
