House prices fell in October for the first time in more than a year

UK house prices fell almost 1 per cent in October, according to Nationwide, the first monthly drop since July 2021.

On an annual basis, house price growth slowed to 7.2 percent, from 9.5 percent in September, according to the building society’s house price index.

It means that the typical price of a house is now £268,282, almost £4,000 less than £272,259 last month.

Nationwide highlighted the fact that higher mortgage rates after the mini-budget were starting to affect home prices.

Slower Growth: On an annual basis, home prices rose 7.2% in October, down from 9.5% the previous month according to Nationwide

Robert Gardiner, its chief economist, said: ‘The market has certainly been affected by the turmoil that followed 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.”

In particular, he said higher mortgage payments would make it harder for first-time buyers to climb the housing ladder.

‘The increase in mortgage rates meant that a prospective first-time buyer earning the median salary and looking to purchase a typical FTB home with a 20 percent down payment would see their monthly mortgage payment increase from about 34 percent of take-home pay to about 45 percent, based on an average mortgage rate of about 5.5 percent,’ he said.

“This is similar to the ratio that prevailed before the financial crisis.”

Less Affordable: Higher rates mean the typical first-time buyer could spend 45% of their take-home pay on their mortgage

Less Affordable: Higher rates mean the typical first-time buyer could spend 45% of their take-home pay on their mortgage

Yesterday, real estate agent JLL predicted that the number of first-time buyers would fall to around 200,000, half the level before the financial crisis.

While mortgage rates have skyrocketed since the mini-budget, some lenders, including NatWest, HSBC and Virgin, have begun cutting rates slightly.

The average rate on a two-year fix has fallen to 6.48 percent, down from 6.65 percent on Oct. 27, according to Moneyfacts.

However, average rates are still around 1.75 percent higher than before the mini-budget.

In addition, the Bank of England will announce a further 0.75 percent increase in the base rate on November 3, which could drive rates higher again.

What will happen to house prices in the future?

Nationwide said the housing market is likely to slow in the coming months, due to rising inflation, the cost of living and higher mortgage rates.

Some analysts have forecast home price declines of as much as 15 percent in 2023. While Nationwide would not give a figure, it said a “relatively soft landing” was still possible if mortgage rates fell and unemployment rates fell. they kept low.

Home Price Movements: Median home cost fell month-over-month in October for the first time since July 2021

Home Price Movements: Median home cost fell month-over-month in October for the first time since July 2021

Gardiner said: ‘It looks like the market will slow down in the next few quarters. Inflation will remain high for some time and the bank rate is likely to rise further as the Bank of England looks to ensure demand in the economy slows to ease 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 receded in recent weeks and may ease further if investor confidence continues to recover.

“Given the weak growth outlook, labor market conditions are likely to soften, but they are starting from a solid position, with unemployment at a nearly 50-year low.

‘In addition, household balance sheets appear to be in relatively good shape with significant protection from higher borrowing costs, at least for a period, with more than 85% of mortgage balances at fixed interest rates.

Mortgage approvals for homebuyers fell 10 percent in September, according to official Bank of England data released yesterday, as analysts at Capital Economic predicted a “collapse” in demand.

Energy bills will affect housing options

Nationwide also noted the impact higher energy bill costs starting in April would have on people’s ability to pay higher mortgage rates, which could keep them from moving up the ladder.

Some have said the higher bills could lead to increased demand for homes with better energy performance certificate (EPC) ratings.

Energy Spend: Nationwide has looked at how much homeowners could spend on bills based on their property's Energy Performance Certificate rating.

Energy Spend: Nationwide has looked at how much homeowners could spend on bills based on their property’s Energy Performance Certificate rating.

“Operating costs for less energy efficient properties tend to be considerably higher, leaving these homes particularly vulnerable to price increases,” Gardiner said.

Nationwide’s analysis found that average energy costs for the most energy-efficient properties (those with EPC ratings A to C) were expected to rise to around £1,800 per year, compared with around £1,000 a year ago. .

Typical bills for D-rated properties, the most common type, will rise to £2,600 a year, he said, and E-rated properties will pay around £120 a month more than last winter.

Those living in the least efficient properties (rated FG) will see average bills rise to £4,500, an extra £185 per month compared to a year ago, although these properties make up only around 2 per cent of households with a mortgage. . said nationally.

What to do if you need a mortgage

Borrowers who need to find a mortgage because their current fixed-rate agreement is coming to an end, or because they have agreed to purchase a home, have been urged to act but not panic..

Banks and building societies continue to lend and mortgages are still being offered and applications accepted.

However, rates are changing rapidly and there is no guarantee that the deals will last and not be replaced by mortgages that charge higher rates.

This is the best Money Mortgage Rate Calculator powered by L&C that can show you offers that match the value of your mortgage and property

What if I need to re-mortgage?

Borrowers should shop around and talk to a mortgage broker and be prepared to act to secure a rate.

Anyone with a fixed-rate agreement ending within the next six to nine months should consider how much it would cost to remortgage now and consider closing a new agreement.

Most mortgage deals allow fees to be added to the loan and are then only charged when you withdraw. By doing this, borrowers can lock in a rate without paying expensive setup fees.

What if I am buying a house?

Those with agreed home purchases should also aim to lock in rates as soon as possible, so they know exactly what their monthly payments will be.

Homebuyers should be careful not to overstretch themselves and be prepared for the possibility of house prices falling from their current high levels, due to higher mortgage rates limiting people’s borrowing capacity.

How to Compare Mortgage Costs

The best way to compare mortgage costs and find the deal that’s right for you is to talk to a good broker.

You can use our best mortgage rate calculator to display offers that match your home value, mortgage size, term, and fixed rate needs.

Keep in mind, however, that rates can change quickly, so the advice is if you need a mortgage, compare rates and then speak to a broker as soon as possible, so they can help you find the right mortgage for you. .

> Consult the best fixed-rate mortgages that you could apply for

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