UK house prices fell by 0.4% in October after Liz Truss’s mini-budget drove a sudden rise in mortgage rates, the lender Halifax said.
The decline in the average price to £292,598 was the third in the past four months and the steepest since February 2021. The annual rate of growth in house prices slowed to 8.3% in October from 9.8% in September.
The mini-budget on 23 September, under the previous prime minister, Liz Truss, and her chancellor, Kwasi Kwarteng, caused financial market turmoil that pushed up borrowing costs and eventually resulted in Truss’s replacement by Rishi Sunak.
Sunak and his chancellor, Jeremy Hunt, responded to the chaos by signalling tax rises and government spending cuts are likely, which could add to the downward pressure on house prices, Halifax said.
Kim Kinnaird, the director of Halifax Mortgages, said the mini-budget had added to other trends that could push prices down, including the rising cost of living and the high level of house prices compared with earnings. Higher unemployment during an expected long recession would also add to downward pressure on prices.
“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,” she said. “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.”
The Halifax report echoed Nationwide, which last week said house prices dropped by 0.9% in October. Economists said the price declines likely marked the start of a period of extended drops. NatWest Group last month forecast that prices will drop by 7% next year.
Martin Beck, the chief economic adviser to the EY Item Club, an economic forecaster, said he expected price declines of between 5% and 10% – in part because the government’s change in policy under Sunak and Hunt had lowered expectations for interest rate increases.
Matthew Pointon, a senior economist at Capital Economics, a consultancy, said: “With mortgage rates set to remain over 5% in 2023, demand will remain depressed and lead to a 12% peak-to-trough fall in house prices.”