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UK average house price drops to £292,598 as market cools

Residential living in North London, UK property, house price
The average house price in the UK fell for the third time in a row and now stands at £292,598. Photo: Getty

Homebuyers needed £292,598 to afford a property in the UK in October as the average house price dropped 0.4%.

The market continued to cool down from record high prices as the average price tag for a home in the UK fell at the sharpest pace in almost two years last month, according to Halifax.

The annual rate of house price growth slowed to 8.3%, from 9.8% in September.

“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,” Kim Kinnaird, director of Halifax Mortgages, said.

“While it is likely that those rates have peaked for now — following the reversal of previously announced fiscal measures — it appears that recent events have encouraged those with existing mortgages to look at their options, and some would-be homebuyers to take a pause,” Kim Kinnaird, director of Halifax Mortgages, said.

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“Understandably we have also seen consumer caution grow, as industry data shows mortgage approvals and demand for borrowing declining.

“The rising cost of living coupled with already stretched mortgage affordability is expected to continue to weigh on activity levels. With tax rises and spending cuts expected in the Autumn Statement, economic headwinds point to a much slower period for house prices.”

Wales remained at to the top of the table for annual house price inflation, up by 11.7%, with an average property costing £222,852.

The West Midlands had the joint highest annual growth of any UK region at 11.7%, with prices for a property hitting £254,962.

Scotland saw another slowdown in the rate of annual house price inflation, to 7.5% from 8.3%. A Scottish home cost an average of £203,820 in October.

The rate of annual growth in Northern Ireland was up 9.5%, with a typical home costing £184,440. Despite the increase, the average house price remains some £46,500 below its pre-financial crisis peak in mid-2007.

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The South West of England also continued to record a strong rate of annual growth, up by 14.5%, with an average property cost of £313,003.

London continued to lag compared to other UK regions, with property prices up 6.8% over the last year. However, given the £551,320 average price tag of a London home, the capital still recorded the biggest cash increase of any UK region over the past year at £34,900.

“The 0.4% monthly drop in house prices in October is to be expected when you consider the challenging borrowing conditions and general gloom clouding the economy right now," Alice Haine, personal finance analyst at Bestinvest, said.

“With inflation at a 40-year high of 10.1%, interest rates at 3%, the economy slowing and the mortgage market still reeling from the effects of Liz Truss’s short tenure as prime minister, affordability is very much in the spotlight with buyers forced to confront whether now really is the right time to buy."

There was also a drop in property prices for first-time buyers. People taking their first step on the housing ladder paid 7.5% more than a year ago for their property, on average, sharply down on 10.1% in September.

The faster slowdown in prices for first-time buyers is not surprising, Halifax said, given the challenge raising a deposit in the current economic slowdown, and tighter requirements for higher loan-to-value mortgages.

“Currently joblessness remains historically low, but with growing expectations of the UK entering a recession, unemployment is expected to rise. Whilst it may not spike to the same extent as seen in previous downturns, history tells us that how this picture develops in the coming months will be a key determinant of house price performance into next year and beyond," Kinnaird said.

The “growing affordability hurdle” is stopping the UK’s runaway housing market in its tracks, Myron Jobson, senior personal finance analyst at Interactive Investor, warned.

“Soaring mortgage rates have become a particular pain point for buyers. The housing market was buffeted by the mortgage market turmoil last month in the aftermath of the ill-fated mini-budget, which sent rates soaring and lead to the withdrawal of some products temporarily from the market.

"This has pushed many wannabe homeowners to the sidelines. While the mortgage marketplace is on a sturdier footing, the likelihood of further interest rate rise to rein in rampant inflation means things could get worse before they get better from an affordability perspective for buyers."

Watch: How does inflation affect interest rates?