UK house prices fall at their fastest pace in two years

For Sale sign displayed on London street

(Image credit: Getty images)

published 1 December 2022

The lasting effects of September’s disastrous mini-budget were felt in November as UK house prices fall at their fastest pace in two years.

Nationwide’s latest house price index shows UK house prices fell 1.4% month-on-month in November, following a 0.9% drop in October. This is their biggest fall since June 2020.

Annual UK house price growth also slowed, down from 7.2% in October to 4.4% in November.

The slowdown follows steep increases in mortgage rates, which shot to over 6% after Liz Truss’s mini-budget spooked markets and increased borrowing costs.

Affordability “was becoming more stretched across the UK” even before the recent increases in mortgage rates, says Robert Gardner, Nationwide’s chief economist. Not only are buyers facing higher repayments, but also the rising cost of living – inflation hit a record high of 11.1% last month as food and energy prices pushed costs up.

What next after UK house prices fall?

It looks as though the house price boom is coming to an end, or at least a severe slowdown, following the two years of rapid growth seen throughout the pandemic.

The Office for Budget Responsibility has already predicted property prices will fall by 9% over the next two years.

“The market looks set to remain subdued in the coming quarters,” said Gardner. “Inflation is set to remain high for some time 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.”

Interest rates are currently at their highest level since 2008. The Bank of England raised interest rates to 3% in November, and the Bank’s chief economist has warned further increases are likely when the Bank meets on 15 December.

This means borrowing costs are likely to remain high for some time; interest rates are forecast to hit 4.5% to 5% by next year.

A woman admiring a house while viewing it with her partner and an estate agent — "It might make sense for first-time buyers to sit on their hands for the time being and wait for prices to bottom out". says Karen Noye, mortgage expert at Quilter

Elevated interest rates have cost the market “a significant degree of momentum”, says Gardner. “Housing affordability for potential buyers and home movers has become much more stretched at a time when household finances are already under pressure from high inflation.”

Long-term borrowing rates have fallen back to around 5% from their 6% highs, but households are also under pressure from higher food and energy prices.

Demand is likely to decrease as the cost of living remains high and people opt to “batten down the hatches and ride out the cost-of-living storm”, says Karen Noye, mortgage expert at Quilter.

But, says Noye, the dip might not last long. “With the stamp duty cut still in play and a serious lack of stock in the market, we should experience just a dip in the housing market as we adjust to a new cost environment which should eventually ease,” she says. “When it does, property prices are likely to rebound.

“It may therefore make sense for first-time buyers to sit on their hands for the time being and wait for prices to bottom out. However, timing the market is no easy feat and it's unwise to put life on hold if you need to move or buy.”

Nicole graduated with a BA in Journalism & Communications from Cardiff University and then went on to do a Masters in Magazine Journalism at City, University of London. She started off as an editorial assistant at MoneyWeek in 2019, and now as well as contributing to the website she’s a writer and section editor for the magazine. Outside of work she loves cooking and eating, her dog Moose and her cat Fish, and buying more plants than she can fit in her house.

What next after UK house prices fall?

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