UK house prices fell for the first time in more than a year in October, as the Liz Truss government’s mini-budget wreaked havoc in the housing market, sending mortgage rates up sharply.
The average property price is down 0.9% compared to September, to £268.282, according to the latest monthly report from the National Building Society, the first snapshot of a turbulent period. This was the first drop since July 2021 and the largest since June 2020. The annual growth rate slowed sharply from 9.5% to 7.2%.
Robert Gardner, chief economist at Nationwide, said: “The market has undoubtedly been affected by the post-mini-budget turmoil, which has led to a sharp rise in market interest rates. Higher borrowing costs have increased housing affordability at a time when finances are under pressure. Families are already under pressure from high inflation.”
The increase in mortgage rates means that a first time buyer (FTB) earning median wage looking to buy a typical FTB home with a 20% deposit will see their monthly mortgage payments rise from 34% of their home wages to 45%, based on The average interest rate is 5.5%. This is similar to the ratio that prevailed before the financial crisis, Gardner said.
Mark Harris, CEO of mortgage broker SPF Private Clients, said the easing of the crisis in financial markets since Truss’ resignation is starting to feed into the mortgage market.
“Some fixed-rate mortgage rates have fallen accordingly over the past few days, with Barclays, HSBC and Santander, among others, cutting their rates,” he said.
However, interest rates are expected to rise further as the Bank of England seeks to cut spiraling inflation in the UK, which reached a 40-year high of 10.1%. The Bank’s Monetary Policy Committee is expected to raise interest rates by 0.75 percentage points on Thursday to 3%.
An interest rate hike can cause mortgage holders on floating rate deals to pay hundreds of extra pounds a year in repayment, depending on the size of their loan. “While anyone in a fixed-term position is currently protected from price hikes, those near the end of their deal are in for a nasty shock when the time comes for a remortgage,” said Myron Jobson, senior personal finance analyst at trading platform Interactive Investor.
Figures from banking authority UK Finance show that 1.8 million mortgage deals are set to expire next year and will need to be refinanced at a time when interest rates are rising. Deputy Governor Ben Broadbent said interest rates set by the Bank of England are unlikely to rise above 5%, warning of a “material” blow to the economy if that happens. Financial markets are now pricing in a 4.5% peak in UK prices.
“Autumn October [in house prices] It could probably be a sign of things to come. Although mortgage rates have eased from the highs seen after the mini-budget, they are still high compared to rates in early to mid-September.”
He said, for example, the standard variable rate on a nationwide mortgage is 5.24%, compared to 3.74% before the mini-budget. “Cost of living pressures remain a challenge, exacerbated by tax increases and public spending restraints in the November autumn statement, and consumer confidence is notably low,” he added.
Nationwide expects the housing market to slow in the coming quarters, in response to rising inflation and rising rates.
Some economists have warned that home prices could fall sharply next year. Real estate firm Jones Lang LaSalle said this week that house price crashes are rare in the UK and predicts a 6% drop in prices in 2023.
Tom Bell, head of UK residential research at Knight Frank, said: “Demand will come under further pressure next year as more and more people come to the end of fixed-rate deals and mortgage offers that were made earlier this year when rates were up. Less.begin to disappear.
Government stability will help support transactions, but we are seeing a fundamental shift in rates taking place after 13 years of very low borrowing costs that will drive prices down. Low unemployment, tight supply, and well-capitalized lenders mean we must avoid the kind of double-digit declines seen during the financial crisis.”