UK house prices fall after 'mini-budget' turmoil

Published Tue, Nov 1, 2022 · 05:26 PM

BRITISH house prices recorded their first monthly fall since July 2021 last month, mortgage lender Nationwide said on Tuesday (Nov 1), after the market was hit by turmoil during Prime Minister Liz Truss’s short-lived premiership.

Borrowing costs soared, and many lenders temporarily stopped issuing loans after her £45 billion (S$73.2 billion) unfunded package of tax cuts caused a fire sale of assets by pension funds that forced the Bank of England (BOE) to stabilise the market.

Nationwide Building Society said house prices dropped by 0.9 per cent in October, after being unchanged in September. They were also 7.2 per cent higher than a year earlier, slowing from September’s annual increase of 9.5 per cent. Economists polled by Reuters had expected an annual increase of 8.3 per cent.

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

Although Truss reversed many of her tax cut measures and sacked her finance minister Kwasi Kwarteng, it proved too little to keep her in office and she was succeeded by Rishi Sunak as prime minister last week.

The monthly fall in house prices was the largest since June 2020, when the market was crimped by initial Covid-19 pandemic restrictions. The annual rise was the weakest since April 2021.

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House prices boomed in Britain and many other Western countries during the pandemic, as people sought more living space, but have since started to slow as rising consumer price inflation and higher official interest rates squeeze disposable income.

“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,” Gardner said.

Nationwide said more than 85 per cent of existing mortgages had a fixed rate insulating homeowners in the short term from higher BOE rates, which look set to rise again on Thursday.

But for new first-time buyers earning an average wage and with a 20 per cent deposit, monthly mortgage payments would rise to around 45 per cent of take-home pay from 34 per cent before the latest turmoil, Nationwide said, based on a typical 5.5 per cent mortgage interest rate. REUTERS

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