UK house prices have fallen at their fastest rate for two-and-a-half years as the fallout from Liz Truss’s disastrous mini-budget favored buyers, according to Nationwide, which warned that inflation and rising interest rates would affect the market in the coming months.
The price of an average house fell 1.4% to £263,788 in November, according to the lender’s House Price Index, accelerating a slowdown that saw prices fall 0.9% in October It was the third consecutive monthly decline and the largest decline since June 2020.
In annual terms, annual house price growth slowed sharply to 4.4% in November from 7.2% the month before.
UK house prices – chart
November’s slowdown illustrated the lasting impact of September’s mini-budget, which spooked markets and drove up borrowing costs. Although public borrowing rates have since declined, average fixed mortgage rates are still around 5% and have continued to weigh on demand.
“Although financial market conditions have stabilised, interest rates on new mortgages remain high and the market has lost a significant degree of momentum,” said Nationwide’s chief economist Robert Gardner. “Housing affordability for potential buyers and movers has become much more widespread at a time when household finances are already under pressure from high inflation.”
Nationwide said a greater proportion of people have been priced out of the market and needed to borrow more money to buy a home.
Inflation rose to 11.1% in October, its highest level since 1981, due to rising energy bills, which has reduced the spending capacity of UK households, including potential home buyers.
The slowdown in house prices indicates the market has cooled from the strong growth seen during the pandemic, when the “race for space” saw people looking for bigger homes after lockdowns across the UK .
Nationwide warned on Thursday that the property market was unlikely to recover those losses soon as policymakers on Threadneedle Street raise interest rates further in a bid to combat rising prices.
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“The market looks like it’s going to stay tight next quarter,” Gardner said. “Inflation will remain high for some time and [the] Bank rate is likely to rise further as the Bank of England seeks to ensure that demand in the economy slows to ease domestic price pressures.
“The outlook is uncertain, and much will depend on the performance of the wider economy, but a relatively soft landing is still possible.”
However, Gardner said homeowners were still in a relatively strong position, despite the looming recession and the prospect of higher rates, given that about 85% of mortgages were on home equity loans fixed term