By Average house prices fell in October, the third such decrease in the past four months.
The drop of -0.4% is the sharpest we have seen since February 2021, taking the typical property price to a five-month low of £292,598.
While the pace of annual growth also continued to ease, to +8.3% compared to +9.8% in September, average prices remain near record highs.
Though the recent period of rapid house price inflation may now be at an end, it’s important to keep this is context, with average property prices rising more than £22,000 in the past 12 months, and by almost £60,000 (+25.7%) over the last three years, which is significant.
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.
Understandably we have also seen consumer caution grow, as industry data shows mortgage approvals and demand for borrowing declining, said Kim Kinnaird, Director, Halifax Mortgages.
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.
While certain longer-term, structural market factors which support higher house prices – like the shortage of available properties for sale – are likely to remain, how significantly prices might ultimately adjust will also be determined by the performance of the labour market.
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.
- Average house price: £293,835
- Monthly change: -0.1%
- Quarterly change: +1.3%
- Annual change: +9.9%
First-time buyers vs homemovers
Property price inflation weakened across all buyer types during October, with annual price growth among homemovers falling to +8.9% from +10.3% in September.
More notable was the drop in property prices for first-time buyers. Annual growth fell to +7.5% in October from +10.1% in September.
Given the greater challenges for first-time buyers in deposit-raising, plus tighter requirements for higher loan-to-value mortgages, the relatively faster slowdown in prices is not surprising, Kinnaird continued.
Nations and regions house prices
All English regions with the exception of the North East experienced weaker annual price inflation during October compared to September.
However the West Midlands now has the joint highest annual growth of any UK region at +11.7% (average property price of £254,962) down from +13.2% the previous month.
Wales saw the same rate of annual growth at +11.7%, though this was a fall from +14.4% (average property cost of £222,852).
Scotland has also seen it’s pace of annual house price inflation slow to +7.5% (from +8.3%) with a typical property now costing £203,820.
House prices in Northern Ireland are up +9.5% year-on-year, easing back from +10.9% last month. At £184,440 the average house price remains some £46,500 below its pre-financial crisis peak in mid-2007.
The pace of annual property price inflation also slowed in London, which continues to lag the other UK regions and nations.
House prices have risen +6.8% over the last 12 months. However, given the cost of the capital’s average property (£551,320), London still recorded the biggest cash increase of any UK region over the past year (+£34,900).
HMRC monthly property transactions data shows UK home sales increased in September 2022.
UK seasonally adjusted (SA) residential transactions in September 2022 were 103,930 – up by 0.2% from August’s figure of 103,720 (down 0.2% on a non-SA basis).
Quarterly SA transactions (July-September 2022) were approximately 0.6% lower than the preceding three months (April 2022 – June 2022).
Year-on-year SA transactions were 36.8% lower than September 2021 (32.2% lower on a non-SA basis). (Source: HMRC)
Latest Bank of England figures show the number of mortgages approved to finance house purchases decreased in September 2022, by 10.3% to 66,789.
Year-on-year the September figure was 7.3% below September 2021. (Source: Bank of England, seasonally-adjusted figures)
The latest RICS Residential Market Survey in September continues to show a loss in momentum in the sales market.
New buyer enquiries fell for a fifth month in a row to a net balance of -36%, compared to -38% previously.
Agreed sales had a net balance of -27% (-22% previously) and new instructions returned a net balance score of – 13% (previously -15%). (Source: Royal Institution of Chartered Surveyors’ (RICS) monthly report)
Tom Bill, head of UK residential research at Knight Frank, comments:
“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.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman, comments:
“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.”
Tomer Aboody, director of property lender MT Finance, comments:
“With a fall in prices in October, we are seeing the end of constant increases as buyers and sellers demonstrate more caution due to higher mortgage rates and cost of living.
As with any fall, buyer sentiment is key but considering external factors affecting everyday life, along with month- on-month increases over the past 18 months or so, the decline is still minimal.
With fewer transactions in the market, it will be interesting what move the government makes in terms of encouraging more activity, and whether mortgage lenders are more flexible on criteria.”
Avinav Nigam, cofounder of real estate investment platform, IMMO, comments:
“The annual slowdown in house price growth was expected in the context of higher interest rates.
This impact is showing up in the data now, reflecting decisions made earlier in the summer when rates began to rise.
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.
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.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, comments:
“House prices fell again in October as higher mortgage costs, as well as the increase in the cost of living, continue to be reflected in the numbers.
Despite another interest rate rise, with the threat of more to come, the outlook for the mortgage market is much more positive than it has been in recent weeks.
Pricing on fixed-rate mortgages continues to settle as Swaps have fallen.
Lender appetite and competitiveness may also increase as activity falls, adding further impetus to the recent rate reductions.
In the meantime, borrowers are opting for tracker or variable mortgages, biding their time until fixes fall further.”
Joshua Raymond, Director at online investment platform XTB.com comments:
“This is the fastest drop in UK house prices since February 2021 and is most certainly as a result of the car crash mini-budget.
The mini-budget saw more than 1000 mortgage deals withdrawn from the market with borrowing costs rising through the roof.
It’s therefore no surprise to see house prices fall sharply as sellers would have needed to offer deep discounts to agree sales given the rise in borrowing costs for buyers.
It’s also quite likely that deals were re-negotiated to lower sales prices given the turbulence in the mortgage market at the time, which may have exacerbated the decline further.
There’s every chance that this fall in house prices could be set to continue as the rise in borrowing costs has taken a large degree of demand out of the market.
Whilst borrowing costs have started to ease, they are still far higher than most mortgage rates offered over the summer.
The one bright spot could be the fact the Bank of England has indicated they won’t hike interest rates much further and the market is overestimating how high rates will go.
That could help to ease those mortgage rates offered for longer term fixed deals. Nevertheless, the mortgage market remains highly turbulent.”
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