House prices soared during the pandemic but are now cooling
(Picture: PA Archive)UK house prices recorded their first monthly fall since July 2021 last month after the market was hit by turmoil during Prime Minister Liz Truss’s short-lived premiership.
The latest House Price Index from lender Nationwide showed annual house price growth slowed to 7.2% in October, down from 9.5% in September.
Prices fell 0.9% month-on-month, from an average of £272,259 in September to £268,282 in October – the first monthly decline since July last year and the largest fall since June 2020.
Robert Gardner, chief economist at Nationwide, said: “The market has undoubtedly been impacted by the turmoil following the mini-Budget, which led to a sharp rise in market interest rates.
“Higher borrowing costs have added to stretched housing affordability at a time when household finances are already under pressure from high inflation.”
Then-chancellor Kwasi Kwarteng’s mini Budget at the end of September caused widespread volatility in the UK’s financial markets, a run on sterling, gilt market freefall and spooked many global investors.
More than 40% of available mortgages were withdrawn from the market in the days following the announcement, according to market tracker Moneyfacts, after financial traders pushed up the cost of borrowing to UK institutions.
Mr Gardner said the recent increase in mortgage rates now means that a prospective first-time buyer earning the average wage and looking to buy a typical home with a 20% deposit will now spend around 45% of their take-home pay on repayments, up from 34% last year.
There could be a further blow to borrowers if the Bank of England increases the base rate as expected this week, and there are signs of a further slowdown in prices ahead.
“The market looks set to slow in the coming quarters,” Mr Gardener warned.
“Inflation will remain high for some time yet and bank rate is likely to rise further as the Bank of England seeks to ensure demand in the economy slows to relieve domestic price pressures.”
However, he said ongoing constraints in the supply of homes would bolster prices in the medium term.
Alice Haine, personal finance analyst at investment platform Bestinvest, said: “The pandemic-fuelled, red-hot market that became the norm over the past couple of years - as buyers sought out bigger properties in the race for space, aided by temporary stamp duty incentives to boost the market - is finally at an end with a much more sobering reality going forward.”
