UK house prices see biggest monthly fall in more than two years as growth slows

Soaring household bills and higher mortgage rates following the disastrous mini-Budget in September have impacted the property market

The average house price fell by 1.4 per cent month on month in November, marking the biggest drop since June 2020, according to an index.

November’s drop followed a 0.9 per cent month-on-month fall in October.

Across the UK, annual house price growth slowed sharply to 4.4 per cent, from 7.2 per cent annual growth recorded in October.

The average house price in November was £263,788, Nationwide Building Society said.

Mortgage rates jumped following the mini-Budget by Liz Truss and Kwasi Kwarteng in September, with the Bank of England’s base rate rises also pushing up borrowing costs, against a backdrop of households being squeezed by rising bills generally.

Robert Gardner, Nationwide’s chief economist, said: “The fallout from the mini-Budget continued to impact the market, with November seeing a sharp slowdown in annual house price growth to 4.4 per cent, from 7.2 per cent in October. Prices fell by 1.4 per cent month on month, after taking account of seasonal effects – the largest fall since June 2020.

“While financial market conditions have stabilised, interest rates for new mortgages remain elevated and the market has lost a significant degree of momentum.

“Housing affordability for potential buyers and home-movers has become much more stretched at a time when household finances are already under pressure from high inflation.

“The market looks set to remain subdued in the coming quarters. Inflation is set to remain high for some time 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 uncertain, and much will depend on how the broader economy performs, but a relatively soft landing is still possible.”

It is the largest monthly fall in house prices since the early days of the pandemic (Getty Images)

Mr Gardner said longer term borrowing costs have fallen back in recent weeks and may moderate further.

“Given the weak growth outlook, labour market conditions are likely to soften, but they are starting from a robust position with unemployment still near 50-year lows,” he said.

“Moreover, household balance sheets remain in good shape, with significant protection from higher borrowing costs, at least for a period, with around 85 per cent 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.”

Tom Bill, head of UK residential research at estate agent Knight Frank, said: “The impact of the mini-Budget continued to reverberate in November, with the largest monthly fall in house prices since the early days of the pandemic.”

He continued: “Mortgage rates should keep edging downwards as the effects of the mini-Budget wash through the system, which should settle the nerves of buyers and sellers, even as a 13-year period of ultra-low borrowing costs comes to an end.

“We expect house prices to fall by 10 per cent over the next two years and the reality of higher rates will bite more after Christmas. Mortgage offers made before the mini-Budget will begin to lapse and increase downwards pressure on prices from 2023.”

Jeremy Leaf, a north London estate agent and a former residential chairman of the Royal Institution of Chartered Surveyors (RICS), said: “Prices are softening but could have fallen further were it not for those two stalwarts, shortage of supply and strong employment, despite continuing concerns over the rising cost of living and particularly mortgage repayments.

“The problem is not existing sales, the overwhelming majority of which are proceeding, but new business. However, some buyers are returning now that mortgage rates are beginning to fall but they are more aware of their stronger position so are negotiating hard.”

James Forrester, the managing director of estate agent Barrows & Forrester, said: “With dwindling economic headwinds in 2023, we expect the property market to perform well.”

Nicky Stevenson, managing director at estate agent group Fine & Country, said: “While a further cooling of prices is expected over the winter, this effect may be mitigated in part by the return of stability to lending markets and more realistic pricing of loans.”

Gabriella Dickens, a senior UK economist at Pantheon Macroeconomics, said: “All told, we expect a peak to trough fall in house prices of around 8 per cent, reversing around one-third of the increase since the start of the pandemic.”

PA