UK house prices fell 0.4% in October after Liz Truss’ mini budget led to a sudden rise in mortgage rates, the Halifax lender said.
The drop in average price to £292,598 was the third in the past four months and the steepest since February 2021. The annual rate of growth in house prices slowed to 8.3% in October from 9.8% in September.
The mini-budget on September 23, under former Prime Minister Liz Truss, and her advisor, Kwasi Quarting, caused financial market turmoil that drove up borrowing costs and eventually led to the replacement of Rishi Sunak Truss.
Halifax said Sunak and his adviser Jeremy Hunt responded to the chaos by pointing to tax increases and government spending cuts, which could add to the downward pressure on home prices.
Kim Kinneard, director of Halifax Mortgages, said the mini-budget added other trends that could drive prices lower, including a higher cost of living and a higher level of home prices relative to earnings. Also, higher unemployment rates during the expected prolonged recession would increase downward pressure on prices.
“While a post-pandemic slowdown was expected, there is no doubt that the housing market received a significant shock as a result of the micro-budget which saw a sudden acceleration in mortgage rates,” she said. While those rates are likely to have peaked at the moment – following a reversal of previously announced financial measures – recent events seem to have encouraged those with existing mortgages to consider their options, and some potential home buyers to pause. “
The Halifax report echoed the Nationwide Echo, which said last week that home prices fell 0.9% in October. Economists said the price declines are likely to mark the beginning of a period of extended declines. NatWest Group last month forecast prices to fall 7% next year.
Martin Beck, chief economic adviser at the EY Item Club, an economic forecaster, said he expects prices to fall by 5% to 10% – in part because the government’s change of policy under Sunak and Hunt has lowered expectations for an increase interest rates.
“With mortgage rates remaining above 5% in 2023, demand will remain low and cause home prices to fall 12%,” said Matthew Boynton, chief economist at consultancy Capital Economics.