UK HOUSE prices fell at the sharpest pace in almost two years, as rising mortgage rates and a gloomy economic outlook depressed demand. 

The mortgage lender Halifax said prices fell 0.4 per cent last month, the third decline in four months. The annual rate of growth fell to 8.3 per cent, from 9.8 per cent.

“The rising cost of living, coupled with already stretched mortgage affordability, is expected to continue to weigh on activity levels,” said Kim Kinnaird, director of Halifax Mortgages. “Economic headwinds point to a much slower period for house prices.” 

The findings echo rival mortgage lender Nationwide Building Society, which last week said prices fell 0.9 per cent, the most since the start of the pandemic.

The Bank of England (BOE) has lifted interest rates eight times in the past year, choking off a decade of cheap borrowing costs that fed the property market. Mortgage rates, which were around 1 per cent just a year ago, are now above 6 per cent, and the central bank says it is likely to deliver further hikes in the coming months.

Prime Minister Rishi Sunak’s government is planning tax increases and spending cuts to help the BOE get inflation under control and restore confidence among UK investors, who dumped the pound and UK bonds last month over concerns that his predecessor, Liz Truss, was promising an unfunded stimulus programme.

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Even after U-turns on most of Truss’ measures and emergency intervention in the bond market by the BOE, market rates for mortgages remain stubbornly high. A two-year fixed rate mortgage still stands at 6.45 per cent in November, putting more pressure on already squeezed household incomes.

“While a post-pandemic slowdown was expected, there’s no doubt the housing market received a significant shock as a result of the mini budget, which saw a sudden acceleration in mortgage rate increases,” Kinnaird said. “Recent events have encouraged those with existing mortgages to look at their options, and some would-be homebuyers to take a pause.”

The BOE lifted its key rate to 3 per cent last week, delivering the biggest tightening to monetary policy in 33 years. It is concerned that inflation is above 10 per cent, the highest in four decades and five times its 2 per cent target.

Estate agents expect the UK property market is entering a sustained price slowdown, that could turn negative within the next 12 months.

While London still recorded the biggest cash increase of any UK region, it continued to lag other UK regions, with the pace of property price growth slowing further in October.

“There are clearly risks coming from the fact that household incomes are being squeezed by mortgage payments,” BOE chief economist Huw Pill in a briefing on Friday (Nov 4). “The gearing in the household sector, relative to the assets it holds, is also being squeezed and will be challenged to some extent by a downturn in housing prices.” BLOOMBERG