House prices dropped by 0.1% in September as the market started to show signs of cooling, according to Halifax.
The bank’s latest house price index found that the average property in the UK cost £293,835, which is still some 9.9% higher than a year ago.
Overall, there are now four UK nations and regions which have seen annual house price inflation fall to single digit levels: Eastern England, Greater London, the North East and Scotland. Perhaps more notably, 11 out of 12 areas recorded slower growth than in August (the exception being the North East).
Wales remains at the top of the table for annual house price inflation with a rate of +14.8%, down from +15.8% in the previous month, and an average property cost of £224,490.
The West Midlands has now overtaken the South West to record the strongest rate of annual growth in England, with house prices rising by +13.3% over the last year, down slightly from +13.5% in August.
In cash terms prices have risen by £30,000 over that period, with an average property now costing £255,822.
The pace of annual house price growth in Northern Ireland eased back further last month to +10.9% from +12.5%, with a typical home now costing £184,570.
Scotland also saw a further slowdown in the rate of annual house price inflation, to +8.5% from +9.3%. A Scottish home now costs an average of £204,305, largely unchanged from the previous month.
London still has the slowest rate of annual growth amongst the UK nations and regions, with house prices rising by +8.1% over the last year.
Though with a typical home costing £553,849 the capital’s average property price remains by far the most expensive in the country.
Kim Kinnaird, Director, Halifax Mortgages, said: “The average UK house price experienced a slight fall in September (-0.1%), the second marginal decrease over the past three months.
“The cost of a typical home edged down a little to £293,835 from the previous month’s record high (£293,992).
“The pace of annual growth also slowed for the third month in a row, to +9.9% from +11.4%, returning to single-digits for the first time since January.
“The events of the last few weeks have led to greater economic uncertainty, however in reality house prices have been largely flat since June, up by around £250.
“This compares to a rise of more than £10,000 during the previous quarter, suggesting the housing market may have already entered a more sustained period of slower
growth.
“Predicting what happens next means making sense of the many variables now at play, and the housing market has consistently defied expectations in recent times.
“While stamp duty cuts, the short supply of homes for sale and a strong labour market all support house prices, the prospect of interest rates continuing to rise sharply amid the cost of living squeeze, plus the impact in recent weeks of higher mortgage borrowing costs on affordability, are likely to exert more significant downward pressure on house prices in the months ahead.
“This will undoubtedly be a cause of some concern for homeowners, but the unprecedented rate of property price inflation we’ve seen in recent years has been far above the historic average.
“It’s important to look at slower growth in this context – since the start of the pandemic average property values have risen by around +23% (almost £55,000) with detached house prices up by more than £100,000 over the same period.”
Reaction
Ross Boyd, founder of the always-on mortgage comparison platform, Dashly.com:
“For the mortgage and property markets, the events of the past fortnight have been like a Freddie Krueger movie.
“Double-digit annual price growth could be gone for a number of years given the new level mortgage rates are at and the long and protracted recession we are almost certainly on the cusp of.
“More rate rises, and potentially very sharp ones, are almost certain, and that will significantly reduce demand for property, putting prices under real pressure. Those people who are currently locked into some of the lowest mortgage rates ever will already be hiding behind the sofa as this horror flick plays out. The rate shock will be extreme.
“The pending remortgage crunch will significantly add to the cost of living crisis and put further pressure on household finances. We are heading into a brutal winter, with confidence among buyers and sellers alike at its lowest level since the Credit Crunch.
“More than ever, people need to speak to a mortgage broker and get off a lender’s SVR, as if fixed rates are at 6%, SVRs could be significantly higher still. The difference could be thousands of pounds in mortgage payments annually.”
Aaron Forster, director of Derby-based mortgage broker, Create Finance:
“With interest, and therefore mortgage rates, almost certainly set to rise higher, it is now very possible that house prices will continue to fall. The slight drop we saw in September could speed up dramatically in the months ahead.
“The market generally slows down in the closing stages of the year anyway as people’s attention switches to Christmas but this year that could happen earlier than usual due to the sheer economic and interest rate uncertainty.
“As mortgages become unaffordable, especially for landlords, there will be an increase in properties on the market, which will will apply downward pressure on prices. We may even see a raft of forced sales next year, adding to that pressure.
“With the cost of living also sky high, mortgage increases will be the final nail in the coffin for many people. Even with tax cuts and the new stamp duty regime, the savings these amount to will be minimal compared to the frightening jump in mortgage costs. If it’s not already, it will become a buyers’ market very soon.”
Andrew Montlake, managing director of the UK-wide mortgage broker, Coreco:
“We need to get used to house price decreases because it’s hard to see the market going in any other direction with mortgage rates where they now are and the fact sentiment among buyers has been hit for six.
“There are so many variables at play in the property market right now you need a Silicon Valley algorithm to make sense of it all, but the overriding theme is uncertainty, and a hell of a lot of it.
“There’s no doubt now that a lot of prospective buyers will either have to look at smaller homes due to the new era of mortgage rates, or will put things on hold full stop until there is more clarity and things have calmed down.
“House prices are set to come under real pressure but the sizeable drops of 10%-15% that some are predicting are frankly unrealistic given the lack of supply. Prices are far more likely to flatline than go through the floor. If there’s one thing everyone can agree on, it’s that the age of dirt cheap money has been relegated to the dustbin of history.”
Graham Cox, founder of the Bristol-based broker, SelfEmployedMortgageHub.com:
“The property market has undergone a seismic shift in the past couple of weeks. Borrowing has got a lot more expensive for lenders, and they are passing on those costs to home buyers. Even though the Bank of England base rate is still only 2.25%, mortgage rates are now at least double that in most cases, often 5% plus.
“Unless the government steps in yet again, I think there will be a flood of forced sellers very soon, as homeowners realise just how much mortgage payments will be going up and panic sets in. At this point, I only see house prices falling significantly in 2023 and beyond.”
Rob Gill, managing director at mortgage broker Altura Mortgage Finance:
“The big concern for the property market is whether rocketing mortgage rates will trigger a buyers’ strike. Will those looking to buy a home when mortgage rates were 3%-4% two weeks ago still be prepared to do so at 5%-6% where rates are now? If too many conclude the answer is ‘No’, then a significant fall in house prices cannot be ruled out.”
Riz Malik, director of Southend-on-Sea-based R3 Mortgages: “
Given we may have two further rate rises before the year is out, I think the purchase market will slow down in the run-up to Christmas, perhaps significantly. Recent economic and political events have shocked a lot of people and it will take time to regain their confidence. It will switch to a buyers’ market assuming borrowers can stomach the rate rises, and those with little or no chain will be in pole position.”
Lewis Shaw, founder of Mansfield-based Shaw Financial Services:
“Unless there is significant intervention from both the Bank of England and the government, it’s a certainty that house prices will start to fall. With mortgage rates reaching new highs not seen for over a generation and signs they could move higher, the impact on buying power is stark. That can only translate into falling house prices.
“Even with the stamp duty cut, most first-time buyers were already exempt from that tax and are facing the highest rates. If first-time buyers can’t afford the mortgage payments, they won’t buy. Given that first-time buyers are the oil that keeps the machine turning, the property market begins to seize if they dry up.
“This all points to a change of direction from a seller’s to a buyer’s market. Add in the glut of buy-to-let properties about to hit the property portals as landlords decide the game is up, and you’ve got all the ingredients for a property crash.”
Samuel Mather-Holgate of Swindon-based advisory firm, Mather & Murray Financial:
“With the typical 2-year fixed rate mortgage now over 6%, it’s obvious this is going to have an effect on the property market. Many are now predicting house price declines of 10% next year, but this is a serious drop and unlikely given the lack of supply.
“We still have a massive shortage of houses in the UK and that will support prices. The Prime Minister is trying to do something about housing, and her reforms to supply side economics will involve making it easier for house builders to obtain planning and get shovels in the ground. She also signalled help for first-time buys with a massive cut to stamp duty for them, and a significant reduction for everyone else.
“Admittedly, the response to the budget from the markets didn’t help anyone, with borrowing rates going through the roof. In fact, this wiped out any benefit that stamp duty cut gave people. With rates at this level, and the base rate likely to rise by over 1% next month, buyers and sellers will dry up and transaction levels will fall off a cliff. What happens in the first quarter of 2023 will be interesting.
“Mortgage interest rates may have settled down by then, and inflation should have started coming down too. This could signal more normal times for the housing market and we could stave off a crash. This will also depend on how hard the economy is hit overall and the depth and length of the the recession we are almost certainly entering into.”
Emma Cox, MD of Real Estate at Shawbrook:
“High inflation and a surge in interest rates has created a challenging backdrop for prospective house buyers.
“While the introduction of a stamp duty cut on properties up to value of £250,000 may offer a glimmer of hope for people currently in the process of purchasing a property, many will be waiting to see which way the wind turns before committing to buy.
“Against an uncertain political and economic backdrop, house prices are likely to continue to be affected, at least in the short term. More needs to be done to alleviate cost of living concerns and restore consumer confidence, on top of solving long-term supply issues.
“With many still reliant on the private rental sector, its vital that landlords are supported and encouraged to provide quality, safe and sustainable properties.”
Mike Staton, director of Mansfield-based Staton Mortgages:
“This week, I drove past seven For Sale signs and only three of them were sold. This is worrying and could be seen as the first sign of a housing market crash. Hopefully we will not end up with one but it’s now starting to appear a very realistic possibility.
“This is especially the case when this week we saw one lender change applicants’ interest rates mid-way through their application, meaning that even the submission of an application isn’t protecting people from interest rate increases, even after they have paid reservation and product fees. With both of these factors in mind, it’s hard to see prices going anywhere but south, or staying flat at best.”
Gaurav Shukla, mortgage adviser at London-based broker, Home Me:
“Although rates increased at the beginning of September, they were still affordable for most customers so it was business as usual. It is no longer business as usual. In fact, in the property market, it is officially now business as unusual.
“Many first-time buyers will now put buying a property on hold, as the level of interest rates will push them out of affordability, especially with household bills due to increase in October. They are contemplating whether now really is the right time to buy. There is extraordinary uncertainty among the UK’s leading lenders and a lack of confidence across the board after the mini-Budget.
“Expect the Bank of England to continue to raise the base rate over the coming months and into 2023, with rates reaching their peak around the second or third quarters of next year. I expect house prices to drop over the coming year, with a much needed market correction. Demand will naturally decrease as only those who can afford mortgage payments at 6% interest rates will be able to proceed.”
Ian Hewett, founder of Ashford-based The Bearded Mortgage Broker:
“Despite all the madness of the past week, I don’t think we will see a property market crash. The reason is simple: the sheer lack of supply. Yes, mortgage rates have increased dramatically, and energy bills are set to soar, so affordability is going to be a challenge.
“However, the extreme lack of stock will likely prevent a crash even if demand drops off sharply. Many first-time buyers will still want to get out of the rental market, where rents are skyrocketing.”
Paul Neal of Derbyshire-based Missing Element Mortgage Services:
“It’s utter carnage out there right now. The wheels are coming off the mortgage market, and the property market as a result. Lenders are still withdrawing products, leaving brokers unsure when they will actually open again. Without mortgages, the property market could go pop.
“Many of our clients are in a Mexican stand-off between pulling the trigger on a property transaction and fleeing the market altogether. So many are unsure about whether to proceed. We have a mixture of clients who are rushing to get their applications in, and others standing off and waiting to see what the future holds.
“It’s impossible to know where prices will be in a year’s time. All we know is that there is a ridiculous amount of uncertainty thanks to last week’s mini-Budget.”
Scott Taylor-Barr, financial adviser at Shropshire-based Carl Summers Financial Services:
“The UK housing market is vastly undersupplied and so a fall in prices can really only be triggered by a couple of things: someone building and then releasing a million homes onto the market all in one go, or lenders withdrawing mortgages meaning that only cash buyers, or those with really big deposits, can purchase.
“I’m not aware of anyone secretly building a million houses, but the second one is scarily looking like becoming a reality. Our hope is that markets settle quickly and lenders return with their full, albeit higher priced, product ranges soon. If not, the housing market is looking extremely vulnerable.”
Joe Garner, managing director at London-based property developer, NewPlace:
“In some areas there will very possibly be a crash, in others prices will stabilise, and in other areas still prices could increase. The type of property will also play a role in how it fares in the weeks and months ahead. While owner-occupied property prices are likely to fall due to the reduced availability of mortgages and liquidity, we will likely see a big shift upwards in the value of rental accommodation.
“People still need somewhere to live, and if they can’t buy, they have to rent. If the demand for rental properties increases then so do the rental payments, which in turn increases the yield, resulting in an uplift in the value of the rented property.
“As mortgage products come to an end, it appears to me that homeowners have two choices. They move onto a new product with the same lender and suffer the inevitable increase in payments or they sell out at below market value and move into rented accommodation.”
James Miles, director of Exeter-based broker, The Mortgage Quarter:
“The pressure cooker is about to pop. We’re seeing borrowers strongly re-evaluate their lending options and demand will almost certainly start to weaken. If demand drops then prices, or at least the rate of price growth, will too.”
Michael O’Brien, managing director at Romford-based Home of Mortgages:
“The property market is not in the grave position it was back in 2008 yet. For now at least, first-time buyers can still purchase with a 5% deposit. There’s no doubt that the cost of borrowing is increasing, however, faced with the alternative, namely the ever-increasing cost of renting, a mortgage is still a more comfortable alternative. That will likely support prices as people will still want to exit the rental market wherever possible.”
Tomer Aboody, director of property lender MT Finance:
“Where demand outstrips supply and borrowing is cheap, people will stretch themselves to buy. That’s what we’ve been seeing over the past couple of years, pushing property prices to new highs.
“However, rates are rising, with some predicting they will hit six per cent. While nobody knows for sure whether that will come to pass, rates could stabilise around 4% over the next couple of years, meaning those coming to the end two or five-year fix could find their mortgage payments double. That will be a big hit to absorb in the family finances.
“There are hard times ahead and many people may have to downsize because they can’t afford the home they bought when interest rates were at rock-bottom. Stamp duty reductions targeted at those who need to sell and find something smaller would make a lot of sense.”
Ross McMillan, owner at Glasgow-based Blue Fish Mortgage Solutions:
“September 2022 could turn out to be a significant turning point in the housing market cycle and it’s hard to now envisage anything other than a significant downturn in prices. Early indications are that, with confidence severely dented by the chaotic events of the past week, many people will now choose to sit on their hands for the next six months or so and wait for things to settle down.
“There is no question that for some would-be buyers, in particular first time buyers, the rise in the cost of the mortgages that remain, along with the associated affordability challenges, will prove too much of a hurdle.
“For those, however, with reasonable deposits and strong incomes, a likely drop in house prices and fall in competition from other buyers could in fact be the opportunity they have been waiting for. Those opting to view from the sidelines will also feel the pain, as the cost of renting is also likely to surge as demand in this sector will continue to far outstrip supply.”
Rob Peters, director of Altrincham-based Simple Fast Mortgage:
“Many people who owned before the Global Financial Crisis have seen interest rates at this level before, and rates of circa 5% were the norm. What has never been the norm, however, is having interest rates rocket upward at the speed they have in the past two months.
“It’s unprecedented. Massive change creates shock in the markets and that is what we are seeing now, both from lenders who have withdrawn their products, and buyers who are panic-stricken. It’s almost certain there will be a house price correction, but it’s still not clear by how much.”
Avinav Nigam, cofounder of real estate investment platform, IMMO:
“The slowdown in house price growth for September was expected as higher interest rates in May and June kicked in, which feed through to transactions data now due to the time lag of conveyancing. We are seeing property listings falling by 15 to 20% in some parts of the UK, as uncertainty encourages property owners to delay transaction decisions.
“The rapid pace of growth we have seen in recent years is coming to an end, partly due to recent interest rate hikes by the Bank of England and the crash of the pound following the government’s mini-Budget.
“It’s predicted that house prices could correct by as much as 7 to 10% in coming months. However, we don’t expect a house price growth reversal to improve the affordability of housing much due to fast rising interest rates. Mortgage lenders are starting to require consumers prove they can afford 7% interest rates, as an indication of where rates could go.
“As it becomes harder and more expensive to buy, we will see consumer demand shifting even more towards renting. The trouble is that the supply of rental housing is also falling. There’s a growing need for a professional provider to offer safe, quality and affordable rental housing for the UK.”
Mark Harris, chief executive of mortgage broker SPF Private Clients:
“General lack of supply continued to drive price increases in September, while the weak pound stimulated investment in London, although there are signs that the market is now slowing.
“While the turmoil of the past couple of weeks will go down in the history books, the money markets seem to have settled a little. More clarity from the government supported by data from the Office for Budget Responsibility will help us get back to a normal functioning market where all lenders can offer a full range of mortgage products.
“It is important to reiterate that the mortgage market is still open for business. Pricing is more expensive than it was but there are plenty of innovative products available that can help first-time buyers boost their deposit and/or affordability, making that dream of buying their first property more within reach than they may think.
“Speaking to an independent mortgage broker will help buyers navigate the options available, finding a mortgage suitable for their requirements.”
Jeremy Leaf north London estate agent and a former RICS residential chairman:
“New buyers are pausing for breath while they consider the likely pace and size of future interest rate hikes, so activity is reducing. The question is whether worries about rising mortgage payments outweigh the benefits of the recent stamp duty reduction, particularly for first-time buyers.
“The mini-Budget sparked a chain reaction of unintended consequences raising buyer concerns that any savings in stamp duty and other taxes would be more than offset by mortgage rates rising much more quickly and higher than expected.”