UK house prices fell nearly 1 percent in October, according to Nationwide — the first monthly drop since July 2021.
On an annual basis, home price growth slowed to 7.2 percent, down from 9.5 percent in September, according to the Building Society Home Price Index.
This means the regular price for a home is now £268,282, down almost £4,000 from £272,259 last month.
Nationwide has highlighted the fact that higher mortgage rates after the micro budget are starting to affect home prices.
Slower growth: On a year-over-year basis, home prices rose 7.2% in October, down from 9.5% the previous month according to Nationwide.
Robert Gardiner, chief economist, said: “The market has undoubtedly been affected by the turmoil that followed the mini-balance sheet, which led to a sharp rise in interest rates in the market.
Higher borrowing costs have added to burdensome housing affordability at a time when household finances are already under pressure from high inflation.
In particular, she said that high mortgage payments would make it difficult for first-time buyers to move up the housing ladder.
The increase in mortgage rates means that a potential median-wage first-time buyer looking to purchase a typical FTB home with a 20 percent deposit would see their monthly mortgage payments rise from about 34 percent of their take-home wage to about 45 percent. cent, based on an average mortgage rate of about 5.5 percent.
“This is similar to the ratio that prevailed before the financial crisis.”
Less expensive: Higher rates mean that the typical first-time buyer could face spending 45% of their wages on their mortgage
Yesterday, real estate agent JLL predicted first-time buyer numbers would drop to around 200,000 — half the pre-financial crisis level.
While mortgage rates have risen since the mini-budget, some lenders – including NatWest, HSBC and Virgin – have begun to lower their rates slightly.
The average two-year repair rate fell to 6.48 percent, down from 6.65 percent on Oct. 27, according to Moneyfacts.
However, average rates are still about 1.75 percent higher than they were before the mini-budget.
In addition, the Bank of England is set to announce another 0.75 percent increase in the base rate on November 3, which could send prices higher again.
What will happen to housing 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 house prices to drop as much as 15 percent in 2023. While Nationwide didn’t give numbers, it said a “relatively soft landing” was still possible if mortgage rates fell and unemployment remained low.
Home price movements: The median home cost fell on a monthly basis in October for the first time since July 2021
Gardiner said: “The market looks set to slow in the coming quarters. Inflation will remain high for some time yet and the bank rate is likely to rise further as the Bank of England seeks to ensure demand in the economy slows to ease domestic price pressures.
“The outlook is very uncertain, and a lot will depend on how the broader economy performs, but a relatively soft landing is still possible.
Long-term borrowing costs have fallen again in recent weeks and could fall further if investor sentiment continues to recover.
Given the weak growth outlook, labor market conditions are likely to soften, but they are starting from a strong position, with unemployment at a 50-year low.
Moreover, household balance sheets appear to be in relatively good shape with significant protection from higher borrowing costs, at least for a period of time, with over 85% of their mortgage balances being fixed-rate.
Mortgage approvals for home buyers fell 10 per cent in September, according to official Bank of England data published yesterday, as analysts at Capital Economics predicted a “collapse” in demand.
Energy bills to influence housing choices
Nationwide also noted the impact of higher energy bill costs from April on people’s ability to pay higher mortgage rates, which could prevent them from moving up the ladder.
Some said higher bills could lead to more demand for homes with better Energy Performance Certification (EPC) ratings.
Energy Expenses: Nationwide looked at how much homeowners might spend on bills based on their property’s Energy Performance Certificate rating
“Operating costs for less energy-efficient properties tend to be much higher, making these households particularly vulnerable to price increases,” Gardiner said.
A Nationwide 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 a year, up from around £1,000 a year earlier.
Typical bills for Class D properties, the most common type, are set to rise to £2,600 a year, she said, and in E properties you’ll pay around £120 more a month than last winter.
Those living in less efficient properties (rated FG) will see average bills rise to £4,500, an extra £185 per month compared to last year, even though these properties make up only about 2 per cent of homes with a mortgage. My estate, he said nationwide.
What to do if you need a mortgage
Borrowers who need to find a mortgage because their existing fixed-rate deal is coming to an end, or because they’ve agreed to buy a home, are urged to act but not panic..
Banks and building societies are still lending and mortgages are still being accepted with applications accepted.
However, rates change quickly, and there is no guarantee that deals will stick and won’t be replaced by mortgages that charge higher rates.
This is Money’s best mortgage rate calculator powered by L&C that can show you deals that match the value of your mortgage and property.
What if I need to re-travel?
Borrowers should compare rates, talk to a mortgage broker, and be prepared to work to secure a rate.
Anyone with a fixed-rate deal that expires within the next six to nine months should consider how much a remortgage will cost now — and consider a new deal.
Most mortgage deals allow a fee to be added to the loan and then only charged when you take it out. By doing this, borrowers can secure a rate without paying expensive arrangement fees.
What if I’m buying a house?
Those who have agreed to buy homes should also aim to lock in prices as early as possible, so they know exactly what their monthly payments will be.
Homebuyers should beware of overexerting themselves and be prepared for the possibility of home prices falling from their current high levels, due to high mortgage rates limiting people’s ability to borrow.
How to compare mortgage costs
The best way to compare mortgage costs and find the right deal for you is to talk to a good broker.
You can use our best mortgage rates calculator to show matching deals for your home value, mortgage size, term needs and flat rates.
Be aware that rates can change quickly, so the advice is that if you need a mortgage to compare rates then speak to a broker as soon as possible, so they can help you find the right mortgage for you.
> Check out the best fixed rate mortgages you can apply for
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