House prices see 'sharp slowdown' in October: Nationwide

October saw a sharp slowdown in annual house price growth, to 7.2% from 9.5% in September, according to the latest Nationwide house price index.

Prices fell by 0.9% month-on-month, after taking account of seasonal effects, the first fall since July 2021 and the largest since June 2020.

Robert Gardner, Nationwide's chief economist, 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.

“For example, the increase in mortgage rates meant that a prospective first-time buyer earning the average wage and looking to buy a typical first-time buyer home with a 20% deposit would see their monthly mortgage payment rise from c.34% of take-home pay to c.45%, based on an average mortgage rate of 5.5%. This is similar to the ratio prevailing before the financial crisis.

“The market looks set to slow in the coming quarters. Inflation will remain high for some time yet and Bank Rate is likely to rise further as the Bank of England seeks to ensure demand in the economy slows to relieve domestic price pressures.

“The outlook is extremely uncertain, and much will depend on how the broader economy performs, but 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. Given the weak growth outlook, labour market conditions are likely to soften, but they are starting from a robust position, with unemployment at near 50-year lows.

“Moreover, household balance sheets appear in relatively good shape with significant protection from higher borrowing costs, at least for a period, with over 85% of mortgage balances on fixed interest rates. Stretched housing affordability is also a reflection of underlying supply constraints, which should provide some support for prices."

Jeremy Leaf, north London estate agent and former RICS residential chairman, commented: "These figures are interesting as they already show a sharp fall even before the shock of the mini budget hit the market. On the ground, new buyer enquiries almost dried up as uncertainty about the future direction of mortgage repayments added to cost-of-living concerns.

"Activity has slowly started to resume since as mortgage rates began to stabilise and are now starting to fall. Buyers are negotiating hard as they strive to take advantage of good mortgage offers while prices continue to be supported by lack of stock."

Mark Harris, chief executive of mortgage broker SPF Private Clients, added: "House prices continue to rise but at a slower pace as higher mortgage costs, along with the rising cost of living, have an impact on affordability.

"Swap rates have calmed since the furore of the fallout of the mini Budget, with two-year money easing by more than 100 basis points over the past month. Some fixed-rate mortgage pricing has dropped accordingly over the past few days, with Barclays, HSBC and Santander, among others, reducing their rates.

"With a 75 basis points base rate rise forecast later this week, borrowers will be wondering whether prices of new mortgages will edge up again. However, while base rate may not peak at 3 per cent, rates may not need to go much higher now that Rishi Sunak has brought some stability.

"Borrowers have been opting for tracker or variable mortgages over the past month, with medium and long-term fixes already falling and expected to fall further."