Official figures show annual price inflation running at 13.6% prior to mini budget announcement

Market commentators are predicting an “uncomfortable landing” for the housing market after the latest official government data found UK house prices increased by 13.6% year-on-year in August.

The ONS figures, which cover the period pre-dating the mini budget, show that while the rate of annual inflation narrowed in the month compared to the 16% reported in July, prices still rose 0.9% month-on-month to hit another record high.

The ONS numbers, which are based on UK housing completions, found that the average cost of a home hit £295,903, with annual growth strongest in the South west, where it hit 17%, and weakest in London, where it reached 8.3%.

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On a monthly basis, prices grew most quickly in the East midlands, where the average cost of a house grew by 2.3%, while the cost of a home actually fell in the West midlands by 0.2%, the only part of the country to experience price declines.

The figures showed a continuation of recent trends whereby growth in prices was much quicker for detached properties, the average cost of which grew by 15.9% in England, compared to just 11% for flats. The average cost of a new build homes also grew in value far more quickly than the second-hand market, with prices up 22.3% year-on-year, compared to just 5.9% for existing homes.

The figures come amid widespread expectations of imminent house price falls given sharp recent rises in mortgage rates in response to economic uncertainty and the market reaction to the mini budget measures. According to figures from consumer finance website Moneyfacts.co.uk, mortgage providers had, as of yesterday, raised the average cost of a two-year fixed rate mortgage to 6.53% - a full 1.8 percentage points higher than it had been at the time of the announcement of the mini budget, adding hundreds of pounds to monthyl repayments.

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In addition, Moneyfacts said the number of mortgages available to first time buyers at 95% loan to value had drastically reduced, from 283 to 155 – a drop of 45%.

Credit Suisse and Capital Economics have predicted peak to trough house price falls of up to 15%, with housebuilders Barratt and Bellway already reporting a steep decline in reservations in recent weeks. Barratt said recent sales rates were down 47% on the same period last year, with Bellway saying equivalent numbers were down 35%, with both firms abandoning expectations of growing output in the current financial year.

However, commentators welcomed the rowing back on the mini budget by new chancellor Jeremy Hunt this week, particularly given his decision to retain the £1.6bn per annum cuts to Stamp Duty contained in the original announcement.

Commenting on the ONS figures, Jonathan Hopper, CEO of Garrington Property Finders, said the mood on the property market had changed beyond recognition since the numbers were produced. He said: “Though they were collected just a few weeks ago, the ONS’s figures are from a different age and a different property market.

“The chaotic aftermath of the former Chancellor’s short-lived mini-Budget has sent mortgage rates soaring and sentiment sliding.

“The speed at which interest rates have risen has thrown many movers off-balance, triggering a hard reset on what many buyers can afford. In some areas, the landing will be uncomfortably bumpy.

Chris Hodgkinson, managing director of HBB Solutions, said the recent “shambolic government performance” would leave its mark on the housing market. He said: “It’s important to note that these figures are reported on a lag of a few months and there’s no doubt that the increasing cost of borrowing will have dampened buyer activity, which in turn will see house prices dip before the year is out.”