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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK house prices in steepest fall since February 2021; global inflation ‘may be nearing peak’ – as it happened

United Kingdom Halifax (Organization) Kim Kinnaird Kwasi Kwarteng Tom Bill
Aerial view of Royal Crescent in London, UK
Aerial view of Royal Crescent in London, UK Photograph: Alexey_Fedoren/Getty Images/iStockphoto

Closing summary

Time for a recap

UK house prices have fallen at the fastest rate in 20 months, as the surge in mortgage costs after the mini-budget hit demand.

The average price fell by around £1,000, or 0.4%, in October, Halifax reported, pulling down the annual rate of house price growth.

Economists and estate agents have predicted that house prices will keep falling over the coming months, with many predicting a drop of around 10%.

This risks pushing newer home-owners into negative equity, Resolution Foundation warned.

The head of the IMF has suggested that global inflation may be near its peak.

Global inflation may be peaking, according to the head of the International Monetary Fund.

Kristalina Georgieva told Bloomberg TV that:

“I’m not going to jump ahead of data, but it is very possible that we are peaking”

Failure to cool inflation would hurt economic growth prospects, she added.

Inflation in boardroom pay doesn’t seem to have peaked, though. The average FTSE 100 saw their pay package swell by around a quarter last year, to £3.9m.

This has been criticised by investors and unions alike, as my colleague Rupert Neate explains:

Frances O’Grady, the general secretary of the TUC, has said the growing disparity between pay at the top and that paid to workers is fuelling the cost of living crisis.

“Workers deserve a fair share of the wealth they create. But right now, CEO pay is soaring while working people experience the biggest real wage falls in 20 years.

“These unbalanced pay policies have seen the gap widen between workers and bosses this year, adding to the cost of living crisis.

Despite signs the UK is heading into recession, Ryanair says there’s no let-up in demand for air travel.

The budget airline has reported a surge in profits to a record €1.4bn (£1.2bn) for the first half of its financial year.

Ryanair’s CEO, Michael O’Leary, has told the Guardian fares were likely to continue to rise into next year, bar a resurgence of Covid or escalation of war deterring travel.

He said that while Ryanair was growing:…

“the competition are all cutting capacity – Lufthansa, IAG, Air France – are exposed to higher oil prices. If capacity keeps falling we’ll see fares rise again by somewhere between 5% and 10%.

The chairman of the UK financial watchdog has warned that its independence would be undermined if the government introduces “call in powers” to intervene in regulation. Those powers could let ministers force regulators to scrap or amend a rule.

Facebook’s parent company, Meta, is reportedly preparing to cut thousands of jobs this week.

In the economic world….. China has suffered its first contraction in trade since May 2020. Imports and exports both fell in September, as demand weakened at home and abroad.

Covid-19 lockdowns mean Apple customers face a longer wait for the latest iPhone.

And….October was another bad month for construction firms in the eurozone; activity fell for the sixth month running, as new orders continued to slide.

FCA: 'Call- in powers" would undermine our independence

Britain’s financial watchdog fears its independence will be undermined if the government introduces controversial “call in powers” to allow parliament to intervene in financial regulation.

Richard Lloyd, the acting chair of the Financial Conduct Authority, has told the Treasury committee that allowing ministers to interfere with financial regulation would hurt the FCA.

Such ‘call in powers’ could allow ministers to change regulatory decisions if watchdogs are deemed too cautious.

Lloyd tells MPs that the FCA has already warned minister of the damage this could cause, creating the impression that the regulator was no longer independent, saying:

We have been very clear with ministers that is of great concern to us.

Even if the powers are “used very sparingly”, depending on the safeguards and the commitments to parliament about how infrequently it might be used, Lloyd says that:

…the perception that comes with the ability of ministers to direct independent regulators clearly will go towards undermining our independence.”

Lloyd says the watchdog has already heard this from statutory panels, from players in the market and consumer groups, adding “that’s how it will be seen internationally as well”.

Updated

The Bank of England has only seen muted demand for its first sale of medium-dated UK government bonds bought through its quantitative easing stimulus programme.

The Bank successfully sold 750m of gilts with a maturity of 7-20 years on Monday, havingy received orders for £1bn.

That’s less interest than it saw last week, when it received almost £2.5bn of bids for the £750m of short-dated British government bonds on offer.

The Bank hopes to sell £80bn of its stock of £835bn of UK government bonds by the end of next year.

US second-hand car prices have continued to slide, in a timely sign that the inflation surge could be fading.

Wholese sale prices for used autos fell by 2.2% in October, according to auction company Manheim, and were 10.6% lower than a year ago.

Used car prices jumped dramatically once the pandemic disrupted global supply chains, hurting production of new cars. There was also rising demand as some people steered away from public transport for fear of catching Covid-19.

But now, semiconductor bottlenecks have eased – helping car factories to produce more models, while the jump in US interest rates is deterring some buyers.

A majority of workers at packaging giant DS Smith have voted in favour of taking strike action in a dispute over pay, the GMB union reports.

GMB, which represents 1,000 workers at the London-listed company, said 93% of the workers had voted for strikes. The industrial action could take place as soon as the end of this month, it said.

DS Smith makes packaging for companies including Amazon, whiskey producer Chivas, craft beer firm Brewdog, drinks giant PepsiCo and KP snacks.

GMB says DS Smith is offering staff a 3% pay rise plus a payment of £760 for 2022-23 – a ‘massive real terms pay cut’ when the retail price index measure of inflation is 12.3%.

Eamon O’Hearn, GMB National Secretary, says staff deserve more:

“DS Smith members worked through the pandemic, helping keep the company afloat through troubled times.

“It turns out that the company was hugely profitable during the pandemic, now they need to company to step up and help them through the cost of living crisis.

“A strike at DS Smith could have serious implications across a range of household names – not least Amazon which gets packaging from the company.

Incidentally, DS Smith’s CEO, Miles Roberts, received a 2% pay increase this year, taking his total pay to £2.58m. But his total remuneration had jumped by 78% the previous year, as DS Smith saw strong trading during the pandemic home-shopping boom.

Many young UK adults are priced out of the housing market even if prices fall by a sixth, the Resolution Foundation warns:

Global inflation may be near its peak, says IMF’s Georgieva

International Monetary Fund managing director Kristalina Georgieva.
International Monetary Fund managing director Kristalina Georgieva. Photograph: Kenzo Tribouillard/AFP/Getty Images

Global inflation may be peaking, according to the head of the International Monetary Fund.

Kristalina Georgieva has said that the global surge in consumer prices may be close to the high point of the current cycle, as central banks continue to drive up interest rates to fight inflationary pressures.

Speaking at the Cop27 climate change summit in the Egyptian resort of Sharm el-Sheikh, the IMF managing director told Bloomberg TV that:

“I’m not going to jump ahead of data, but it is very possible that we are peaking”

Failure to cool inflation would hurt economic growth prospects, she added:

“We now see central banks very united on fighting inflation as a top priority and rightly so.

If we don’t succeed, it would de-anchor and then the foundation for growth which is price stability is dented.”

Energy prices have fallen from their highs this summer, while falling demand (illustrated by the surprise contraction in China’s trade last month) could also ease inflation.

US inflation data, due on Thursday, is expected to show that price increases slowed, to 8% per year in October from 8.2% in September.

In the UK, inflation is a 40-year high of 10.1%, but is expected to fall back next year.

UK inflation forecast from the Bank of England
UK inflation forecast from the Bank of England Photograph: Bank of England

However, bringing inflation back down to target might take time, Georgieva added.

“Inflation is going to be harder to bring down to the desirable level of around 2%.

“If we are going to see diversification of supply chains, that inevitably is going to put some upward pressure on prices.”

Updated

PwC, who conducted the pay survey, reports that 56% of FTSE 100 CEOs received a percentage salary increase for 2022 in line with, or below, the workforce level.

The big change, which drove pay back to pre-pandemic levels, was bonuses.

Only 5% of FTSE 100 CEOs received no bonus for 2021/22, down from 22% in 2020/21.

And the average annual bonuses for 2021/22 increased to 86% of the maximum opportunity, which is above historical pre-covid levels.

'Tin-eared' CEOs criticised for huge bonuses

Investment management firm EdenTree has criticised ‘tin-eared’ CEOs whose pay is soaring as workers face real terms pay cuts and falling house prices.

We flagged earlier (see post) that the average FTSE 100 CEO got a 23% pay boost this year, to £3.9m, mainly due to a jump in bonuses.

Neville White, Head of RI Policy & Research at EdenTree, says the return of big bonuses is largely ‘unjustifiable’ in the current economic climate:

“2022 has seen a strong bounce back in bonus culture after overall remuneration quantum stalled in 2020-21, much of which we find unjustifiable in the midst of an economic downturn.

For the first year since we began consistent voting on executive pay, EdenTree has been unable to support any FTSE100 remuneration policies or reports, opposing all those that have come before us.

White also criticices the “disagreeable trend” towards Restrictive Share Plans – which hand out shares to employees without any performance targets.

And he adds that some bonus schemes are being manipulated to pay out cash to executvies, even if targets were missed:

Unfortunately we have also seen individual examples of Remuneration Committee discretion being applied to change or manipulate performance metrics in order to pay out.

At a time of increasing economic hardship, this somewhat ‘tin-eared’ response by executives to their own rewards sets a particularly poor example.”

Here’s a timely example of how rising interest rates has hit mortgage affordability:

BOE calls for tougher global regulation after UK pensions crisis

As well as driving up mortgage costs, the plunge in UK government bonds after the mini-budget created turmoil in the pensions industry.

Pension funds with leverage driven investment strategies were forced into a wave of fire sales – as UK bond prices fell, funds had to put up more collateral, forcing them to sell bonds which drove price lower.

And now, a Bank of England senior policymaker has warned that tighter global regulation may be needed to prevent dangerous levels of debt building up, as well as more transparency about risks.

Sarah Breeden, executive director for financial stability strategy and risk, warned the international community hasn’t made enough progress tackling the risks of leverage outside the banking sector (now more closely regulated following the financial crisis).

In a speech today, Breeden said that the root cause of the pension crisis was “poorly managed leverage” – which led the Bank to pledge to buy up to £65bn of gilts to stabilise the markets.

She said:

“Beyond improving transparency, regulators will need to consider how best to ensure leverage is well managed.

She added that “market regulations to ensure excessive leverage is better controlled by market pricing and margins” could help build resiliency.

And she concludes by warning that lessons must be learned from the risis:

Events of recent weeks, months and years have once again reminded us of the systemic risks posed by poorly-managed leverage in the non-bank financial system.

All too often excessive risk taking alongside improper liquidity risk management has threatened conditions in the real economy - an issue that feels especially pertinent in the current environment of high volatility and tightening financial conditions.

Updated

Full story: UK house prices fall after ‘significant shock’ of mini-budget

UK house prices fell by 0.4% in October after Liz Truss’s mini-budget drove a sudden rise in mortgage rates, the lender Halifax said.

The decline in the 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 23 September, under the previous prime minister, Liz Truss, and her chancellor, Kwasi Kwarteng, caused financial market turmoil that pushed up borrowing costs and eventually resulted in Truss’s replacement by Rishi Sunak.

Sunak and his chancellor, Jeremy Hunt, responded to the chaos by signalling tax rises and government spending cuts are likely, which could add to the downward pressure on house prices, Halifax said.

Kim Kinnaird, the director of Halifax Mortgages, said the mini-budget had added to other trends that could push prices down, including the rising cost of living and the high level of house prices compared with earnings

Higher unemployment during an expected long recession would also add to downward pressure on prices.

“While a post-pandemic slowdown was expected, there’s no doubt the housing market received a significant shock as a result of the mini-budget which saw a sudden acceleration in mortgage rate increases,” she said.

“While it is likely that those rates have peaked for now – following the reversal of previously announced fiscal measures – it appears that recent events have encouraged those with existing mortgages to look at their options, and some would-be homebuyers to take a pause.”

Young homeowners at risk of negative equity as house prices fall

Rising interest rates and falling house prices could drive newer housebuyers into negative equity – which scarred the UK economy in the early 1990s.

The Resolution Foundation has warned that higher interest rates will affect over five million households with mortgages by the end of 2024.

However, younger homeowners will be particularly hard hit, as they tend to be earlier in their mortgage terms – when interest forms the largest share of mortgage payments. They will also have bought when house prices were at record levels, meaning they are more highly leveraged than previous generations of first-time buyers.

Sophie Hale, Principal Economist at the Resolution Foundation, said:

Alongside higher mortgage costs, young homeowners are also in particular danger of low or negative equity as a result of falling house prices.

“The flip side is that falling house prices and higher returns on savings could lower barriers to home ownership for the next generation of first-time buyers, by making it easier for them to come up with a deposit on their first home.”

Sharp rise in unemployment would push house prices down

The outlook for the UK housing market could depend on how sharply unemployment rises (as well as interest rates) as the economy teeters on the brink of recession.

Kim Kinnaird, Director at Halifax Mortgages, says history shows that rising joblessness hits house prices.

“Currently joblessness remains historically low, but with growing expectations of the UK entering a recession, unemployment is expected to rise.

Whilst it may not spike to the same extent as seen in previous downturns, history tells us that how this picture develops in the coming months will be a key determinant of house price performance into next year and beyond.”

Mike Scott, chief enalyst at national estate agency Yopa, agrees, adding:

A sharp rise in unemployment, particularly long-term unemployment, would both reduce the demand for buying a home and increase the supply due to forced sales from homeowners who could no longer afford their mortgage repayments. However, in other recent economic downturns the UK labour market has proved surprisingly resilient, so we do not expect such large increases in unemployment levels.

We would also anticipate some kind of government action to assist homeowners who couldn’t keep up with their mortgage repayments. We therefore do not expect significant house price falls next year.

Updated

WSJ: Facebook parent Meta prepares large-scale layoffs this week

The job cuts hitting the tech industry could deepen this week, with Facebook’s parent company, Meta, reportedly preparing to let thousands of workers go, my colleague Josh Taylor reports.

On Sunday the Wall Street Journal reported that the cuts, to be announced on Wednesday, were expected to affect thousands of Meta’s 87,000 employees globally.

Meta declined to confirm the report but a spokesperson pointed to comments made by the Meta chief executive, Mark Zuckerberg, late last month.

In 2023, we’re going to focus our investments on a small number of high-priority growth areas.

So that means some teams will grow meaningfully, but most other teams will stay flat or shrink over the next year.

Here’s Josh’s story:

Elon Musk has shown the perils of sacking staff on mass, having laid off half of Twitter’s workforce on Friday.

Twitter is now reaching out to dozens of employees who lost their jobs and asking them to return, realising they are needed to implement Musk’s plans….

Rehiring staff isn’t as easy as firing them, though:

Londoners are particularly keen to buy their own properties to get out of the rental market, a new survey shows.

About two thirds of buyers in the capital want to move home within a year, according to a Bloomberg Intelligence poll of those planning to purchase a property in the next two years.

In London, some 35.6% of respondents to the survey cited a desire to stop renting as an important factor, compared with 21.6% for the UK average.

BI analyst Iwona Hovenko wrote in the report.

“It’s understandable, given the city’s frenetic rental market with significant shortage of rental properties, as well as double-digit rent rises.”

More here: London Renters Are More Keen Than Other Britons to Buy Homes

Average private rents in Britain have soared to record highs, and are expected to keep climbing as landlords pass on higher mortgage costs to tenants.

In a gloomy development, the eurozone’s construction sector has now shrunk for six months running.

Building firms reported a sharp decline in activity, led by housing sector, according to S&P Global Insight’s latest survey of purchasing mangers.

Business sentiment fell to among the lowest level on record, as construction firms saw the quickest downturn in new orders since May 2020, and another jump in prices.

This knocked the eurozone construction PMI deeper into contraction territory, to 44.9 in October, down from 45.3 in September (50 points = stagnation).

The survey painted a bleak picture of the overall health of the eurozone construction sector, says Laura Denman, economist at S&P Global:

Forward-looking indicators suggest that the current trends would likely continue into the future.

The 12-month outlook for activity sank to a level that was among the lowest on record and firms continued to trim buying activity in line with current and anticipated demand weakness.

As we head into the winter months, it will be interesting to see how eurozone’s construction sector fares in the face of the current economic landscape.”

FTSE 250 index up 1%

The London Stock Exchange sign in the City of London.
The London Stock Exchange sign in the City of London. Photograph: Kirsty O’Connor/PA

In the City, the UK-focused FTSE 250 index of medium-sized companies has started the new week on the front foot.

The FTSE 250 index has jumped 1%, with airline Wizz Air up 5.7% following Ryanair’s surge in profits, and luxury carmaker Aston Martin up 12% to a five-week high.

The bigger FTSE 100 index of blue-chip stocks is slightly lower, though. Retailers and supermarkets are rallying, but GSK is down 2.7% after its blood cancer drug Blenrep failed to prove it was better than an existing treatment on the market, in a late-stage study.

Victoria Scholar, Head of Investment, interactive investor says,

“Coming off the back of the best week in almost two years, the FTSE 100 is trading lower this morning after hopes were dashed that China could be set to ease its strict zero-tolerance to Covid approach, pushing the miners into the red.

Oil is also under pressure while gold has fallen from a three-week high.

The travel and leisure sector is outperforming thanks to strong results from Ryanair while Flutter is trading at the top of the UK index after Fox ended its legal battle with the gambling company over FanDuel’s price. Despite disappointing trade data from China with annual exports declining for the first time since May 2020, the Hang Seng continues its ascent from Friday, rallying another almost 3%.

Ryanair has reported a surge in profits to a record €1.4bn (£1.2bn) for the first half of its financial year.

The budget airline said it was seeing no letup in the demand for air travel going into winter after record summer passenger numbers.

Ryanair reported greater traffic at higher fares than the same period in 2019, before the coronavirus pandemic, the first time that has been achieved since the first Covid-19 lockdowns.

The production towers of the ArcelorMittal steel-producing factory near the harbour in Hamburg, northern Germany.
The production towers of the ArcelorMittal steel-producing factory near the harbour in Hamburg, northern Germany. Photograph: Axel Heimken/AFP/Getty Images

In better news, German industrial production rose in September, despite output falling at the most energy-hungry factories.

Manufactuting production rose by 0.6% month-on-month, following a 1.2% drop in August, as factories managed to lift output despite fears Germany was sliding into recession.

But there was a 0.9% drop in output from the most energy-intensive branches of industry, where some factories have slowed or paused production because surging energy prices made it uneconomic.

On an annual basis, German industrial production was up by 2.6%.

Carsten Brzeski of ING says Germany’s industrial production held up well in September, showing the economy stumbled but didn’t fall in the third quarter:

Global supply chain frictions as well as the impact of low water levels on logistics combined with high energy prices continue to weigh on German industry.

Industry didn’t fall off a cliff in the third quarter but stagnated.

Several factors will push down on the UK housing market, warns Karen Noye, mortgage expert at Quilter:

She says there’s no doubt we’ll see a further drop in house prices, following October’s 0.4% fall, as demand falls and more people try to sell.

“Ultimately, costs are rising across the board and as the winter draws in and the real impact of rising energy bills hits, people’s finances will be stretched even further.

With mortgage rates rising, many people will need to reconsider moving home and could opt to stay put to ride out the cost-of-living crisis instead, while others will need to move into cheaper properties.

Halifax survey shows "house prices are on the turn"

Average UK house prices will fall between 5-10% over the next 12 to 18 months, predicts the EY ITEM Club.

Martin Beck, their chief economic advisor, predicts the drop in house prices in October will be repeated in the coming months:

Although mortgage rates have retreated from the highs seen just after the mini-Budget, they remain elevated compared to early-mid September. For example, the current standard variable rate on a Halifax mortgage is 5.74%, compared to 3.74% pre-mini-Budget.

House prices are still very high on most metrics with average property prices having risen more than £22,000 in the past 12 months, and by almost £60,000, or just over a quarter, over the last three years.

Cost of living pressures remain significant, and household incomes face an added challenge due to tax rises and public spending restraint in November’s Autumn Statement, while consumer confidence remains depressed.

Updated

House prices fall as 'affordability hurdle' rises

The “growing affordability hurdle” is stopping the UK’s runaway housing market in its tracks, warns Myron Jobson, senior personal finance analyst at interactive investor.

Jobson explains that rising interest rates and the cost-of-living crunch are hitting buying activity and purchase prices, leading to the 0.4% drop in house prices month-on-month in October.

And he fears this affordability problem will get worse:

“Soaring mortgage rates have become a particular pain point for buyers. The housing market was buffeted by the mortgage market turmoil last month in the aftermath of the ill-fated mini-Budget, which sent rates soaring and lead to the withdrawal of some products temporarily from the market.

This has pushed many wannabe homeowners to the sidelines. While the mortgage marketplace is on a sturdier footing, the likelihood of further interest rate rise to rein in rampant inflation means things could get worse before they get better from an affordability perspective for buyers.

It’s a particularly rough time for first-time buyers, Jobson adds:

Both home prices remains high compared to yesteryear and mortgage rates have risen, while soaring inflation is eating into disposable incomes - making it harder to save for a deposit.

China's trade unexpectedly shrinks as demand slows

China has suffered its first contraction in international trade since May 2020, early in the pandemic, in a sign that the global economy is slowing.

Exports and imports unexpectedly contracted in October, as Chinese firms were hit by Covid-19 curbs at home and the global slowdown.

Exports fell by 0.3% year-on-year, a stark reversal on the 5.7% growth in September, and the biggest drop since May 2020. Economists had expected a small slowdown, to 4.3% growth.

This tumble in exports comes as the energy crisis threatens to push Europe into recession, while the UK economy could also already be shrinking.

Inports of goods fell 0.7%, suggesting China’s domestic economy was fragile.

Exports to Europe (-9% year-on-year) and to the US (-13% y/y) both fell, but there was an annual rise in shipments to Southeast Asia.

Zhang Zhiwei, president and chief economist of Pinpoint Asset Management, explains (via Bloomberg):

“The weak export growth likely reflects both poor external demand as well as the supply disruptions due to Covid outbreaks.

“I expect export growth to remain weak in the next few months as the global economy slows.”

Iris Pang of ING says:

Covid cases started to climb in October but have affected factory activity only slightly, and there were no cases found in ports. So we can rule out shipment delays as a factor in the contraction.

Inflation in Europe and the US continued to be high, which could be a factor. Slower imports of electronic products paint a similar picture.

If this is the reason for the contraction in China’s international trade in October then we should expect the contraction to continue as our economists covering Europe and the US project a recession in these two economies.

Apple warns of iPhone shipments delays due to Covid restrictions

Apple is warning customers they’ll have to wait longer to get its latest iPhone models after anti-virus restrictions were imposed on a contractor’s factory in central China.

The company announcement on Sunday gave no details but said the factory operated by Foxconn in the central city of Zhengzhou is “operating at significantly reduced capacity.”

Apple said:

“We now expect lower iPhone 14 Pro and iPhone 14 Pro Max shipments than we previously anticipated. Customers will experience longer wait times to receive their new products.”

Last week, Chinese authorities announced a seven-day coronavirus lockdown in the area around Foxconn’s plant – the world’s largest iPhone factory – as China continues with its ‘zero-Covid’ policy.

Elliott Benson, mortgage broker at Sett Mortgages, predicts house prices will fall over the next year.

Last week’s interest rate rise, from 2.25% to 3%, will also weigh on the market, Benson adds:

“The mini-Budget, or at least what happened after it, hit sentiment like a sledgehammer. And even though we all knew last week’s interest rate rise was coming, it will still have proved a further shock to many homeowners, especially those who took out sizeable mortgages at record low rates.

Higher rates mean people won’t be able to borrow as much, which in turn means they won’t be able to offer as much for property. House prices will invariably head south during the next 12 months as people adjust to the new rate environment.

North London estate agent Jeremy Leaf says some prospective buyers have returned to the market, since mortgage rates stabilised:

‘These comprehensive figures are particularly interesting as the modest monthly fall in house prices shows on the one hand the resilience of the market in the period leading up to the mini-Budget, as well as the uncertainty which followed.

‘Since then, we’ve seen on the ground a combination of those trying to take advantage of attractive mortgage offers and new buyers slowly emerging now mortgage rates are steadying and even starting to fall.

But we are not seeing any collapse in pricing or sales agreed.

Avinav Nigam, cofounder of real estate investment platform, IMMO, is seeing signs of a housing slowdown:

‘We are seeing property listings falling by 15 to 20 per cent in some parts of the UK, as uncertainty encourages property owners to delay transaction decisions.

That will put more pressure on the rental market, Nigam adds:

‘As it becomes harder and more expensive to buy, demand for rental properties is expected to grow. Meanwhile, many smaller private investors are exiting due to higher finance and regulatory compliance costs.

There’s a clear opportunity for professional providers of safe, quality and affordable rental housing for the UK.’

House prices have probably peaked following the boom in the pandemic, says Tom Bill, head of UK residential research at Knight Frank:

Bill expects prices will fall back to last summer’s levels:

“There was a sharp intake of breath in the UK housing market last month due to the impact of the mini-Budget but that doesn’t mean prices are now on a steeper downwards trajectory. We expect mortgage rates to calm down in the short-term as financial markets respond to the new government but it’s a fair assumption that house prices have peaked following growth of more than 20% during the pandemic.

After 13 years of ultra-low borrowing costs, anyone buying a house or re-mortgaging will recognise the ground has shifted, which is the reason we expect prices to fall back to the level they were at in summer 2021.”

Back in August 2021, the average house price was £262,954, which is around 10%, or £30,000, below the £292,598 recorded in October.

First-time buyers drive house price slowdown

Property price inflation weakened across all buyer types during October, led by first-time buyers.

People taking their first step on the housing ladder paid 7.5% more than a year ago for their property, on average, sharply down on 10.1% in September.

Annual price growth among existing homemovers fell to +8.9% from +10.3%.

The relatively faster slowdown in prices for first-time buyers is not surprising, Halifax says, given the challenge raising a deposit in the current economic slowdown, and tighter requirements for higher loan-to-value mortgages.

Updated

FTSE 100 CEO pay jumps by a quarter

Pay restraint for thee, but not for me.

That’s the mantra in UK boardrooms, it seems, after top bosses enjoyed another year of strong earnings growth.

FTSE 100 chief executives’ pay soared by an average of 23% this year, according to research from PwC, at a time when workers are seeing real terms pay cuts (and now seeing falling house prices too).

The jump in average pay, to close to £4m, was driven by record bonus payouts – as CEO’s aced lower targets set during the pandemic.

The Financial Times has the story, and explains:

Many companies bounced back strongly as Covid-19 lockdowns ended, leading to an average CEO bonus of 86 per cent of the maximum available, up from 58 per cent last year and against a long term average of 70 to 75 per cent, according to PwC.

The higher bonuses took overall average pay up from pre-pandemic levels of £3.6mn in 2018-19 and £3.7mn for 2017-18.

Andrew Page, executive compensation leader at PwC UK, reckons CEOs will face greater scrutiny from shareholders at the next AGM season.

Such large pay rises for multimillionaires are “far from ideal at a time when their lower-paid colleagues are denied a pay rise that keeps up with inflation,” points out Luke Hildyard, director of the High Pay Centre think-tank.

FT: Bonus bonanza boosts FTSE 100 chief executives’ pay by nearly a quarter

Updated

Introduction: UK house prices fall after mini-budget shock

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

UK house prices fell in October at the fastest rate since early last year, as the market was rocked by the fallout from the disastrous mini-budget.

The average house price fell by 0.4% in October, figures just released by the Halifax building society shows. That’s the sharpest fall on Halifax’s index since February 2021, following a 0.1% drop in September.

That pulls the annual rate of house price inflation down to 8.3% from 9.8%, and means the typical UK property now costs £292,598, down from £293,664 last month.

The market cooled as hopeful housebuyers saw mortgage rates surge, with lenders removing thousands of offers as the cost of borrowing rocketed. The average two-year fixed-rate home loan jumped over 6.5% in October, from below 5% before the mini-budget.

Halifax house prices index to October
Halifax house prices index to October Photograph: Halifax

Average prices remain near record highs, but the recent period of rapid house price inflation may now be at an end, warns Kim Kinnaird, director at Halifax Mortgages.

Kinnaird explains that the surge in UK costs following former chancellor Kwasi Kwarteng’s package of unfunded (and now abandoned) tax cuts was a ‘significant shock’:

While a post-pandemic slowdown was expected, there’s no doubt the housing market received a significant shock as a result of the mini-budget which saw a sudden acceleration in mortgage rate increases.

While it is likely that those rates have peaked for now – following the reversal of previously announced fiscal measures – it appears that recent events have encouraged those with existing mortgages to look at their options, and some would-be homebuyers to take a pause.

Annual house price growth slowed in every region of England apart from the North East, and also slowed in Northern Ireland, Scotland, and Wales.

Halifax’s survey matches a similar report from Nationwide last week, which also showed a fall in house prices last month.

Many economists have predicted that house prices could fall by around 10% next year, as the UK falls into recession and households are squeezed hard by surging energy and food prices.

Kinnaird predicts a ‘much slower period for house prices’, as Kwarteng’s successor, Jeremy Hunt, prepares a package of hefty tax rises and spending cuts.

“Understandably we have also seen consumer caution grow, as industry data shows mortgage approvals and demand for borrowing declining. The rising cost of living coupled with already stretched mortgage affordability is expected to continue to weigh on activity levels.

With tax rises and spending cuts expected in the Autumn Statement, economic headwinds point to a much slower period for house prices.

The agenda

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