House prices fell in October for first time in more than a year 

According to Nationwide, UK house prices fell nearly 1 percent in October, the first monthly decline since July 2021.

Year-on-year, house price growth slowed to 7.2 percent, from 9.5 percent in September, according to the construction company’s house price index.

It means that the average price of a house is now £268,282, almost £4,000 lower than £272,259 last month.

Nationwide highlighted the fact that higher mortgage rates started to affect house prices after the mini-budget.

Robert Gardiner, chief economist, said: ‘The market has undoubtedly been hit by the post-mini-budget turmoil, which has led to a sharp rise in market interest rates.

“Higher borrowing costs have increased the affordability of housing at a time when household finances are already under pressure from high inflation.”

Specifically, it said higher mortgage payments would make it harder for first-time buyers to get up the housing ladder.

The rise in mortgage rates meant that a prospective first-time buyer looking for a typical FTB home with a 20 percent down payment would see their monthly mortgage payment rise from about 34 percent of net pay to about 45 percent, based on an average mortgage rate of about 5.5 percent,” he said.

‘This is comparable to the ratio before the financial crisis.’

Yesterday, real estate agent JLL predicted that the number of new buyers would fall to about 200,000 – half the pre-financial crisis level.

While mortgage rates have risen since the mini-budget, some lenders, including NatWest, HSBC and Virgin, have begun to cut rates somewhat.

According to Moneyfacts, the average rate for a two-year fix has fallen to 6.48 percent, from 6.65 percent on Oct. 27.

However, the average rates are still about 1.75 percent higher than before the mini-budget.

In addition, the Bank of England will announce a further 0.75 percent hike in the base rate on November 3, which could cause interest rates to rise again.

What will happen to house prices in the future?

Nationwide said the housing market is likely to slow in the coming months due to rising inflation, the cost of living and higher mortgage rates.

Some analysts have forecast a decline in house prices of up to 15 percent by 2023. Though Nationwide didn’t quote any numbers, it said a “relatively soft landing” was still possible if mortgage rates fell and unemployment remained low.

Gardiner said: “The market appears to be slowing down in the coming quarters. Inflation will remain high for some time to come and bank rates are likely to rise further as the Bank of England causes demand in the economy to slow to ease domestic price pressures.

“The outlook is extremely uncertain and a lot will depend on how the economy performs in general, but a relatively soft landing is still possible.

Longer term borrowing costs have fallen in recent weeks and could decline further if investor sentiment continues to recover.

“Given the weak growth outlook, labor market conditions are likely to weaken, but they are starting from a robust position, with unemployment nearing a 50-year low.

In addition, household balance sheets look relatively good with significant protection against higher borrowing costs, at least for a period, with over 85% of mortgage balances at fixed interest rates.

Mortgage approvals for home buyers fell 10 percent in September, according to official Bank of England data released yesterday, as analysts at Capital Economic predicted a “collapse” in demand.

Energy bills influence housing choices

Nationwide also pointed to the impact that higher energy bills from April would have on people’s ability to pay the higher mortgage rates, preventing them from moving up the ladder.

Some have said that higher bills could lead to greater demand for homes with better energy performance certificates (EPCs).

“Operating costs for less energy-efficient homes are typically significantly higher, making these households particularly vulnerable to price increases,” Gardiner said.

Nationwide’s analysis found that average energy costs for the most energy-efficient homes (those with EPC ratings from A to C) were expected to rise to around £1,800 a year, compared to around £1,000 a year ago.

Typical bills for D-rated properties, the most common type, are expected to rise to £2,600 a year, and E-rated properties will pay around £120 a month more than last winter.

Those living in the least efficient homes (rated FG) will see average bills rise to around £4,500, an extra £185 a month compared to a year ago, although these properties only make up about 2 percent of mortgaged homes , said nationally.