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House prices fall at fastest rate in two years

British Prime Minister Liz Truss and the Chancellor of the Exchequer Kwasi Kwarteng attend the Government's Growth Plan statement at the House of Commons, in London, Britain, September 23, 2022. UK Parliament/Jessica Taylor/Handout via REUTERS    THIS IMAGE HAS BEEN SUPPLIED BY A THIRD PARTY. MANDATORY CREDIT.  IMAGE MUST NOT BE ALTERED.
Liz Truss and Kwasi Kwarteng's disastrous mini-budget is widely blamed for the downturn in property market. Photo: UK Parliament/Jessica Taylor/Reuters

UK house prices growth slowed “sharply” last month, representing the biggest monthly drop in value since June 2020.

Prices fell 1.4% from October the equivalent of around £4,500, to £263,788, according to Nationwide’s house price index.

Excluding the pandemic, prices have not fallen this sharply since the global financial crisis more than a decade ago. Economists had expected a fall of 0.4%.

The lender added the housing market looked set to "remain subdued" in the coming months.

Victoria Scholar, head of investment at Interactive Investor, said the “fiscal fiasco” of the mini-budget helped to push house prices down in November.

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“Nationwide’s UK November house price index grew by 4.4% year-on-year slowing from 7.2% in October and falling short of estimates for growth of 5.8%. On a monthly basis, house prices slid by -1.4% versus a drop of 0.9% in November and below forecasts for -0.3%,” she said.

“The fiscal fiasco of the mini-budget which pushed mortgage rates sharply higher added to existing upward pressure on lending rates and sharply weighed on housing demand in Britain.

“Macroeconomic pressures from the rising cost of living and a slowing economic trajectory are dampening demand for housing with many potential buyers opting to rent instead for now until house prices and mortgage rates come down next year. Offsetting a more painful drop in the housing market is the chronic undersupply of housing in this country, which is propping up prices,” she added.

Mortgage rates jumped following the mini-budget in September, with Bank of England base rate rises also pushing up borrowing costs, against a backdrop of households being squeezed by rising bills generally.

Robert Gardner, Nationwide’s chief economist, said: “The fallout from the mini-budget continued to impact the market, with November seeing a sharp slowdown in annual house price growth to 4.4%, from 7.2% in October. Prices fell by 1.4% month on month, after taking account of seasonal effects – the largest fall since June 2020.

“While financial market conditions have stabilised, interest rates for new mortgages remain elevated and the market has lost a significant degree of momentum.

“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.

Read more: UK mortgage approvals hits lowest since June 2020 as property demand cools

“The market looks set to remain subdued in the coming quarters. 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.

“The outlook is uncertain, and much will depend on how the broader economy performs, but a relatively soft landing is still possible.”

The rise in mortgage rates has made affording a house even more of a stretch.

Property website Zoopla reported earlier this week that homes had been typically selling for 3% below their asking price in recent weeks - warning that the figure would likely deteriorate further next year.

Nationwide points out that a typical buyer, with a 20% deposit and borrowing four times their income, would need to be rather higher up the income stream in the south of the country, rather than the north.

“For example, in Scotland and the North of England, this typical buyer would be in the 30th income percentile, while in the South West they would be in the 80th percentile, and above the 90th percentile in London and the South East,” Nationwide said.

The biggest deterioration in affordability since 2019 has been in Wales, with the typical buyer now located in the 60th income percentile, compared to the 40th percentile in 2019.

Watch: Will UK house prices ever fall?