There was a sharp slowdown in annual house price growth last month, to 7.2% from 9.5% in September, according to the Nationwide Building Society.
House prices fell by 0.9% month-on-month, after taking account of seasonal effects, the first such fall since July 2021 and the largest since June 2020.
Robert Gardner, Nationwide’s chief economist, 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.
“For example, the increase in mortgage rates meant that a prospective first-time buyer (FTB) earning the average wage and looking to buy a typical FTB home with a 20% deposit would see their monthly mortgage payment rise from c.34% of take-home pay to c.45%, based on an average mortgage rate of 5.5%. This is similar to the ratio prevailing before the financial crisis.
“The market looks set to slow in the coming quarters. 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.
“The outlook is extremely uncertain, and much will depend on how the broader economy performs, but a relatively soft landing is still possible. Longer term borrowing costs have fallen back in recent weeks and may moderate further if investor sentiment continues to recover. Given the weak growth outlook, labour market conditions are likely to soften, but they are starting from a robust position, with unemployment at near 50-year lows.
“Moreover, household balance sheets appear in relatively good shape with significant protection from higher borrowing costs, at least for a period, with over 85% of mortgage balances on fixed interest rates. Stretched housing affordability is also a reflection of underlying supply constraints, which should provide some support for prices.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman, added: “These figures are interesting as they already show a sharp fall even before the shock of the mini budget hit the market. On the ground, new buyer enquiries almost dried up as uncertainty about the future direction of mortgage repayments added to cost-of-living concerns.
“Activity has slowly started to resume since as mortgage rates began to stabilise and are now starting to fall. Buyers are negotiating hard as they strive to take advantage of good mortgage offers while prices continue to be supported by lack of stock.”
