UK house prices fall after mini-Budget turmoil – what does it mean for you explained

HOUSE prices fell in September following the fallout from Kwasi Kwarteng's mini-Budget.

Across the UK, house prices fell by 0.9% in October, according to the figures from Nationwide.

The annual rate of house price growth also slowed to 7.2% in October down from 9.5% in September.

A typical UK property now costs £268,282, according to Nationwide's index - down £3,977 from September when the average price was £272,259.

But house prices are still up on a a yearly basis, with the average property worth £17,971 compared to the same month in 2021.

The slowdown comes after mortgage rates hit a 14-year high last month amid political and economic turmoil following former Chancellor Kwasi Kwarteng's mini-Budget.

Mortgage rates have fallen back slightly from that peak but could still go higher as the Bank of England is expected to hike interest rates again.

Higher mortgage rates make it harder for people to borrow money.

It comes at the same time as the cost of living crisis, which is squeezing incomes.

Lenders are making tougher checks on affordability to make sure people can keep up with repayments.

Tighter lending can have a knock-on impact on house prices, with fewer buyers meaning the market can cool.

Commenting on the house price figures, Robert Gardner, Nationwide's chief economist, said the month-on-month fall is the first since July 2021 and the largest since June 2020.

He said: “The market has undoubtedly been impacted by the turmoil following 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."

What will happen to house prices?

Stamp duty cuts, housing shortages, rising interest rates and higher mortgage borrowing costs are likely to lead to "downward pressures" on house prices in the months ahead.

There are several different measures of how house prices change.

But Rightmove's latest House Price Index suggests that the average price of properties coming to the market rose by 0.9% in October.

And figures from Rightmove suggest that the average house price hit a new record of £371,158 in October.
According to Halifax's most recent data, house prices fell in September as the annual rate of growth slowed to 9.9%.

A typical UK property cost £293,835 in the same month, according to Halifax’s index.

Halifax will release its next monthly index on Monday, November 7 showing house price data for October.

The Office For National Statistics (ONS) also releases regular figures on house price data.

Its most recent figures cover the period before the mini-Budget in August, when house prices rose by 13.6% over the year.

The ONS will release its monthly house price index for September and October in November and December.

At the height of the mini-Budget turmoil Credit Suisse warned that house prices could fall by 15% next year.

Some experts have dampened down their predictions for house prices since then as the turmoil subsided.

It's worth noting that house price predictions are just that, and no one can know for sure what will happen.

And experts in the field, including Nick Morrey of Coreco, argue that because the UK has a low supply of housing, predictions that house prices may collapse should be taken with a pinch of salt.

Ben Thompson of the Mortgage Advice Bureau previously told The Sun: "The most likely scenario as things look today, is that demand falls back from current levels and we do see a flattening off in house prices from now onwards, and probably single-digit falls on and off for a few months."

Nathan Emerson, chief executive of Propertymark said: "The potential for a softening of prices isn’t as terrifying as it sounds if we remember that prices have inflated by nearly 20% over the last two years."

How does it affect my finances?

How will it affect homeowners?

Falling house prices reduce the amount that homeowners are willing to spend.

This means that homeowners may be less inclined to sell up and buy a new property if house prices continue to fall.

Instead, homeowners tend to reign in their spending and save for a brighter day when house prices recover.

Some households may become trapped in "negative equity" when the value of the house is less than the price they paid for it - but this depends on how long they've lived there and when they bought it.

The majority of homeowners are on fixed-rate mortgage deals and over a million homeowners could be in for a bill shock next year when they're forced to eventually come to take out a new mortgage.

The Sun has already explained what you should do after mortgage rates shot up.

There are now fewer fixed mortgages to choose from, and rates will rise - meaning some may experience a drop in affordability, making it harder to get top rates.

If you're wondering whether to fix early now ahead of expected rate hikes, then you'll need to figure out whether it is worth doing so if you have to pay an early repayment charge.

Lenders slap this charge on borrowers if they leave their deal early - it can be up to 5% of your remaining balance, which could be thousands of pounds.

Use a calculator like the one offered by Nous, the cost of living website, which helps you work out if it’s cost-effective to refix early.

In any case, you should seek professional advice from a mortgage broker.

How will it affect first-time buyers?

On paper, a fall in house prices should mean that first-time buyers will need a smaller deposit to buy.

However, because mortgage rates remain high, any savings from a fall in house prices could be lost when it comes to mortgage costs.

If you're a first-time buyer you'll need to look carefully at your budget to see if you can definitely afford to take on a mortgage now.

There are now fewer deals on the market to choose from - and less chance for you to shop around for the best one.

But John Charcol mortgage technical manager Nick Mendes previously told The Sun that a drop in house prices as demand cools could bring some good news for first-time buyers.

He said: "It will be welcome news to first-time buyers who have seen property prices increase month on month for the past two years," he said.

"But with property prices increases over the last year and wages not keeping up with inflation and rates rises, many first-time buyers could be holding back on any plans and wait to see how things settle before jumping into one of the largest commitments in a mortgage."