Sharpest fall in house prices for two years as mortgage costs soar
HOUSE prices slumped at their steepest rate in nearly two years after turmoil on markets in the wake of the mini-budget caused mortgage rates to soar.
The 0.4pc monthly fall in October marked the third consecutive decline in four months, according to Halifax, and is the sharpest drop recorded since February 2021.
Halifax said the slowdown was in part triggered by the fallout of former prime minister Liz Truss’s mini-budget, which sent financial markets into a free-fall.
Kim Kinnaird, of Halifax, said: “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.
“The rising cost of living coupled with stretched mortgage affordability is expected to continue to weigh on activity levels. Economic headwinds point to a much slower period for house prices.”
Soaring mortgage rates have destroyed affordability, with the average rate on a two-year fixed-rate deal jumping from 3.25pc at the start of June to 4.24pc at the beginning of September, according to Moneyfacts. After Kwasi Kwarteng, chancellor at the time, set out spending plans in Parliament, sparking a sell-off of government bonds that forced banks to withdraw deals for new customers as they became difficult to price, the average two-year fix rocketed to a peak of 6.65pc on Oct 20.
Experts said the full impact of the mini-budget chaos is yet to flow into house prices. The October data was the first back-to-back monthly drop since the housing market shutdown in 2020. Since June, the annual rate of growth has plunged from 12.5pc to 8.3pc.
Matthew Pointon, of Capital Economics, said: “House price declines are becoming entrenched. Surging mortgage interest rates have flattened demand.”
Rates have stabilised and started to fall back since Jeremy Hunt replaced Mr Kwarteng and reversed the majority of the mini-budget. But analysts do not expect a dramatic decline in mortgage costs. Capital Economics has forecast that rates will remain above 5pc across 2023, and expects a 12pc fall in house prices as a result.
Halifax’s data are based on mortgage approvals, which reflect deals agreed a few weeks earlier, and mortgage rates did not peak until Oct 20. This means the November data are likely to be even more stark.
The annual rate of house price growth fell to 8.3pc, down from 9.8pc, according to Halifax. The average home now costs £292,598 – £1,066 less than in September. The first-time buyer market has been hardest hit. Annual growth for entry-level properties slowed to 7.5pc, down from 10.1pc in September.
This is because first-time buyers have been hit by tighter credit requirements.
The Resolution Foundation, a think tank, warned more than one in seven under 34-year-olds will fall into low or negative equity if prices fall as predicted by 8pc over the next two years.
Annual house price growth slowed in every region in England except the North East. In Wales, house price growth slowed from 14.4pc to 11.7pc and in Scotland from 8.3pc to 7.5pc.