UK house prices were flat this month for the first time since July 2021, according to new figures that reveal the effect of rising interest rates even before the mortgage market turmoil sparked by the government’s “mini” Budget.
Building society Nationwide on Friday said the average house price did not change between August and September, ending more than a year of uninterrupted growth. The annual pace of growth slowed to 9.5 per cent, from 10 per cent in the previous month, the slowest since April last year.
Nationwide’s chief economist Robert Gardner said further signs of a slowdown in the market had emerged over the past month, as the number of mortgages approved for house purchase weakened and surveyors reported a decline in new buyer inquiries.
“The slowdown to date has been modest and, combined with a shortage of stock on the market, this has meant that price growth has remained firm,” he said.
Gardner added that the cut in stamp duty, as well as the strength in the labour market, could provide some support to activity and prices. But he cautioned that “headwinds are growing stronger, suggesting the market will slow further in the months ahead”.
These include high inflation, which is exerting significant pressure on household budgets and stretching price and mortgage affordability, even before the surge in mortgage rates this week.
Following chancellor Kwasi Kwarteng’s announcement of £45bn of debt-funded tax cuts, markets are pricing in a 125 basis point interest rate rise at the next meeting of the Bank of England’s Monetary Policy Committee in November.
This would be the largest of the seven consecutive increases by far, lifting the rate to 2.25 per cent in September.
The outlook for the property market “is even gloomier, due to a further jump in mortgage rates”, said Gabriella Dickens, UK economist at the consultancy Pantheon Macroeconomics.
The rate for a two-year fixed-rate mortgage with a 75 per cent loan to value ratio rose to 3.64 per cent in August, up from 1.64 per cent in January.
Dickens said the market turmoil meant that rate was on course to hit almost 6 per cent by mid-2023, which would leave many people struggling to afford mortgage payments.
Even before this week’s market turmoil, the typical mortgage payment in the third quarter accounted for 34 per cent of take-home pay, the highest since 2008, according to Nationwide.
Separate data published by the BoE on Friday showed many homebuyers were rushing to conclude mortgage deals in August before the expected rise in interest rates.
Approvals for house purchases increased sharply to 74,300 in August, up from 63,700 the previous month, the highest since January and above the pre-pandemic average of 66,800.
But most economists said the property market faced a downward trend.
Olivia Cross, economist at the consultancy Capital Economics, said the expected rise in mortgage rates to 6 per cent would result in an average house price fall of 10-15 per cent.
With “the surge in interest rate expectations since the chancellor’s ‘mini’ Budget, both a recession and a big fall in house prices looks inevitable”, she said.
Originally published at Sydney News HQ
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