Mini-Budget puts end to house price boom

An end to the house price boom has been signalled by major mortgage lenders Nationwide and the Halifax.

The former recorded prices down by 0.9 per cent between September and October. The latter put the fall at 0.4 per cent.

Both lenders also found the annual rate of house price inflation as falling – Nationwide down from 9.5 per cent in September to 7.2 per cent in October, Halifax down from 9.8 per cent to 8.3 per cent.

The monthly drop of 0.4 per cent ‘is the sharpest we have seen since February 2021, said Halifax Mortgages director Kim Kinnaird.

‘Though the recent period of rapid house price inflation may now be at an end, it’s important to keep this is context, with average property prices rising more than £22,000 in the past 12 months, and by almost £60,000 over the last three years. While a post-pandemic slowdown was expected, 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.

‘While it is likely that those rates have peaked for now – following the reversal of previously announced fiscal measures – it appears that recent events have encouraged those with existing mortgages to look at their options, and some would-be homebuyers to take a pause. ‘Understandably we have also seen consumer caution grow, as industry data shows mortgage approvals and demand for borrowing declining. The rising cost of living coupled with already stretched mortgage affordability is expected to continue to weigh on activity levels. With tax rises and spending cuts expected in the Autumn Statement, economic headwinds point to a much slower period for house prices’.

Nationwide chief economist Robert Gardner largely agreed.

‘The market has undoubtedly been impacted by the turmoil following the mini-Budget, which led to a sharp rise in market interest rates’, he said.

‘Higher borrowing costs have added to stretched housing affordability at a time when household finances are already under pressure from high inflation.

‘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’.

* Higher mortgage interest rates could take 5 per cent off house prices, housing market portal Zoopla has estimated. And it does not expect rates to return ‘to the ultra-low levels of recent years’.

‘New buyer demand has dropped quickly in the face of higher borrowing costs’, said Zoopla director Richard Donnell. ‘The most likely outcome for 2023 is that we see a fall in mortgage rates towards 4 per cent with a modest decline in house prices of up to 5 per cent’.