The house market showed early signs of slowing in September, according to industry data released on Friday, as house prices nudged lower.
According the Halifax House Price Index, house prices eased 0.1% in September, compared to a marginal rise of 0.3% in August and the second decrease in three months. The annual growth rate also eased, to 9.9% from 11.4%.
The average UK property now costs £293,835, a slight reduction on the previous figure of £293,992, though it remains near record highs.
Kim Kinnaird, director at Halifax Mortgages, said: “The events of the last few weeks have led to greater uncertainty. However, in reality, house prices have been largely flat since June, up by around £250. This compares to a rise of more than £10,000 during previous quarter, suggesting that the housing market may have already entered a more sustained period of slower growth.”
Looking ahead, Kinnaird said there were “many variables at play”, noting: “While stamp duty cuts, the short supply of homes for sales and a strong labour market all support house prices, the prospect of interest rates continuing to rise sharply amid the cost of living squeeze, plus the impact in recent weeks of higher mortgage borrowing costs on affordability, are likely to exert more significant downward pressure on house prices in the months ahead.”
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “House prices fell slightly last month, reflecting the fact that demand was already falling earlier this summer, well before the mini-budget tipped the mortgage market into chaos. Once September’s rate hikes feed through into sales figures in the coming months, the risk of more significant house price falls will build.
“The chaos unleashed on the mortgage market last month will take its toll towards the end of the year and into the beginning of 2023.”
Markets are widely assuming the bank rate could reach 5.5% by the middle of next year, although Martin Beck, chief economic advisor to the EY Item Club, said he expected the rate to peak at 4%.
“However, rates at that level would still significantly reduce demand for properties and decrease the size of loans that lenders can offer,” he argued.
“Combined with the weakening economic outlook and squeezed household incomes, the EY Item Club expects property values to fall by 5% or more over th next year or so.
“With the average house price having risen 25% since the start of 2020 alone, such a fall would not be overly problematic. However, it would likely prompt a more cautious attitude among potential buyers and lenders, and have a long lasting dampening effect on the property market.”
Myron Jobson, senior personal finance analyst at Interactive Investor, said: “Property prices are cooling, even retreating.
“The spike in mortgage rates in tandem with rampant inflation could result in a more acute property market slowdown in the coming months. The evidence points to house prices dampening rather than tumbling as the laws of supply and demand are likely to continue to prevail. The weaker pound could also fuel interest from foreign investors, which could exacerbate the supply-demand mismatch.”