Building society says drop of nearly 1% was first month on month fall since July last year

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UK annual house price growth slowed to 7.2% in October as prices suffered their first monthly decline since July 2021, the Nationwide said today. 

The average price of a house in the UK, seasonally adjusted, dropped 0.9% from September to October this year, from an average price of £272,259 to £268,282. 

Robert Gardner, Nationwide’s chief economist, said the fall was due to the economic turmoil after September’s mini-budget and a sharp rise in interest rates. The Bank of England voted to raise interest rates to 2.25% on 22 September and mortgage rates have recently been at their highest for around 14 years. 

“The market has undoubtedly been impacted by the turmoil following the mini-budget, which led to a sharp rise in market interest rates,” Gardner said. 

“Higher borrowing costs have added to stretched housing affordability at a time when household finances are already under pressure from high inflation.”

He pointed out that a first-time buyer on an average wage could expect to see their monthly mortgage payment rise from about 34% of take-home pay to about 45%, with a 20% deposit and mortgage rate of 5.5%. 

Although he predicted the UK housing market would slow in the coming quarters, he also thought that a “relatively soft landing is still possible”. 

“Longer term borrowing costs have fallen back in recent weeks and may moderate further if investor sentiment continues to recover,” Gardner explained. 

He also highlighted that unemployment was at a 50-year low and “household balance sheets appear in relatively good shape”. 

Jonathan Hopper suggested the Nationwide figures gave “barely a foretaste of what’s happening on the property frontline”. 

“Asking prices are being reduced in many areas, and sellers who just months ago could take their pick of offers are now biting off the hand of a strong, proceedable buyer – even those asking for a price reduction.” He predicted: “With further mortgage turbulence likely and the balance between supply and demand reversed from where it was a year ago, 2022 will not end like it began.”

However, Marc von Grundherr, director of Benham and Reeves estate agents, believed the slowing of the housing market was a positive outcome. 

“Any market slowdown is likely to strike fear into the hearts of the nation’s homeowners, but a reduction in the rate of house price growth should be largely welcomed,” Grundherr said. 

“The monumental levels of house price appreciation seen throughout the pandemic market boom just simply aren’t sustainable and it’s far better the market steadily returns to normality, rather than crashing back down to earth with a bump.”