The housing market is showing signs of renewed vigour but there are fears the scars of the Liz Truss mini-Budget could be re-opened when Chancellor Rachel Reeves unpacks her Autumn Budget of "tough decisions" and "painful measures" at the end of this month.

According to the regular monitor produced by Nationwide Building Society, UK house prices rose by a higher-than-expected 0.7% in September from August, with the annual growth rate hitting 3.2%. That was the fastest pace recorded since November 2022 - some six weeks after Ms Truss and her Chancellor Kwasi Kwarteng upended markets - and substantially ahead of analysts' expectations that prices would rise by 0.2% on a monthly basis and stand 2.7% higher than in September 2023.

Meanwhile, latest money and credit data from the Bank of England (BoE) shows that net mortgage approvals for house purchases increased by 2,400 to 64,900 in August, the highest since a peak of 72,000 in August 2022. 

Read more:

Net mortgage approvals are a good barometer of future lending and this improvement reflects the impact of the BoE's 5-4 vote in August to cut UK interest rates for the first time in more than four years by a quarter of a percentage point to 5%. Although the Bank opted thereafter to stand pat in September, the odds are heavily weighted in favour of further reductions to come.

This has soothed some of the damage from the mini-Budget of 2022 that spooked markets with fears of unfunded tax cuts, which caused mortgage rates to spike sharply to an average of 6% in a period when inflation was already rampant due to the energy crisis. That sucker punch knocked the wind out of the housing market.

A total of 286 estate agents across the UK went bust during the 12 months to the end of July, according to data compiled by the Insolvency Service, an increase of 32% on the previous year. The figures underline the gloom that was prevalent until lately across the property sector, with the fewest home sales for more than a decade hitting estate agency income.

Thomas Pugh of accountancy firm RSM UK said the combination of rising house prices and mortgage approvals reinforces the view that the housing market is reviving as five-year fixed rates have fallen below 3.7% for the first time since the beginning of this year. And with house prices still about 2% below the record highs seen in the summer of 2022, there remains "plenty of room for catch up growth".

However, he also noted that data released last month by GfK showed a sharp deterioration in household morale as consumers nervously await the Budget decisions due to be announced on October 30. 

Read more:

"The risk is that worries about a 'painful' budget have dented consumer confidence, which will cause households to save more, stunting the recovery in consumer spending," Mr Pugh said.

With the economy and therefore the property market standing at a particularly vexing crossroads, Ms Reeves faces a formidable challenge in delivering a Budget that underlines her party's credibility as both a trusted custodian of the public purse and a champion of growth.

The mood music since Labour came into office this past summer has been that of a funeral dirge, driving home the grim consequences of what it claims is a £22 billion "black hole" in the finances inherited from the Conservatives. And though there have been promises of "light at the end of the tunnel", more than a few are wondering whether it's not the high beams of an oncoming train.

Given the tax take available via stamp duty from a healthy flow of housing transactions, keeping momentum flowing in the market's recovery is in the Labour government's self-interest. Anything that knocks the stuffing out of the sector would be a bad look for a party that made housing one of the central planks of its election manifesto.

Much will depend on what the Budget holds. There have already been some commitments of assistance for first-time buyers such as a new guarantee scheme and more new homes, but stamp duty thresholds will return to previous levels next year and it looks unlikely there will be any replacement for the Help to Buy programme that ended last year.

Read more:

Despite the prospect of cheaper mortgages to come, borrowing costs remain relatively high compared to two years ago. Who gains and who's losing out depends on the type of mortgage someone has and what stage of the home ownership journey they have reached.

Alice Haine, personal finance analyst at Bestinvest, noted that the cut in interest rates in August has not fully filtered through to the mortgage market just yet as the effective rate on newly-drawn mortgages rose by 3 basis points during the month to 4.84%. Others are similarly not yet out of the woods.

“Those with cheap fixed-rate loans secured before the rate hikes began and set to expire soon are also bracing themselves for significantly higher repayments when they come to refinance," she said. "This was evident in the 3-basis point rate increase for the outstanding stock of mortgages to 3.72%, as more people rolled off cheap fixed rate deals.” 

For the wider economy the most important thing is whether the upward trend in transactions is maintained, as this should boost an array of businesses from brickmakers and plant hire firms through to DIY chains, furniture retailers and those estate agents mentioned earlier. 

With all of this in mind, it would be surprising if the new government does anything to overtly upset the housing applecart. Inadvertent mistakes always remain a possibility, of course, but a repeat of the mini-Budget chaos of 2022 seems unlikely.