By The data on UK house prices for October 2022 reveals a sharp deceleration in annual growth, dropping to 7.2% from 9.5% in September. This is paired with a monthly decline of 0.9% in prices, the first since July 2021. Key drivers behind this include the economic impact following the UK’s mini-budget, which led to a spike in borrowing costs and pressured housing affordability, especially as inflation remains high and wages struggle to keep up with cost-of-living increases.
The effects are particularly notable for first-time buyers, who are now facing mortgage payments consuming around 45% of take-home pay (up from approximately 34%), aligning with levels seen pre-financial crisis. Though the Bank of England’s rate hikes aim to cool inflation, the impact on the housing market could be substantial, especially for lower-income households with less financial flexibility.
Additionally, energy costs are a rising concern, despite government interventions like the Energy Price Guarantee. Households in energy-inefficient properties face sharply higher costs, with bills rising up to £4,500 annually for those in the least efficient homes, which disproportionately affects lower-income households already stretched by essentials.
With high inflation persisting and the possibility of further interest rate increases, market momentum is likely to slow over the next quarters. However, some long-term stability could emerge if investor sentiment stabilizes and borrowing costs ease, although this is largely contingent on broader economic performance and energy price developments.
Industry comments
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: “Competition among lenders to offer cheaper mortgage rates has boosted housing market activity.
“Many buyers were waiting for rates to come down before taking action and with hopes that the Bank of England will move again and cut rates next week, this will further encourage those who may be wavering.
“Swap rates rose on the back of the Budget but this could be a knee-jerk reaction rather than a sustained period of higher rates. Only time will tell – if Swaps remain at elevated levels for a while, lenders may have to increase their mortgage rates.
“Lenders have been repricing this week – some increasing rates, others reducing pricing in order to attract new business. Borrowers looking for a mortgage should speak to a whole-of-market broker to find the best deal available to them.”
Amy Reynolds, head of sales at Richmond estate agency Antony Roberts, says: “House prices seem to be holding steady, with only moderate shifts in value. However, the market is marred by some uncertainty among buyers, leading to an increase in properties coming back on the market after fall-throughs. These fall-throughs are often due to buyer nervousness, which in many cases is unrelated to the property itself but rather a reflection of economic uncertainty and tightening financial conditions.
“With the Budget not as dramatic as feared from a property perspective, the ‘wait and see’ approach we have seen from some buyers, who have been more cautious than usual given the economic backdrop, will hopefully now ease.
“For now, demand remains and most properties are successfully re-agreed and sold after returning to the market. Demand for prime London locations is historically resilient; buyers may pause to reassess financial implications, but high-demand areas are likely to retain interest.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: ’The number of sales agreed has increased steadily since base rate was reduced in the summer, as have mortgage approvals. However, the increase in stock, particularly from landlords who have had their fill of tax and regulatory issues, will worsen.
“We expect the Budget will increase demand for smaller properties as first-time buyers seek to profit from investors unwilling to pay higher taxes before stamp duty rates rise early next year.”
Tomer Aboody, director of specialist lender MT Finance, says: “Another slight increase in monthly house prices is further demonstrating the confidence which has been felt with a lower rate environment, on the back of some good inflation numbers.
“With mortgage rates at more affordable levels, borrowers will be further incentivised to take the plunge, especially in the wake of Rachel Reeves’ Budget, which could possibly lead to higher rates.”
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