UK house prices fell in October at the fastest pace since early last year as the market was rocked by the fallout from the disastrous mini-budget. The average house price fell 0.4% in October, figures just released by the Halifax Building Society show. This is the sharpest fall in the Halifax index since February 2021, after a 0.1% drop in September. This reduces the annual rate of house price inflation to 8.3% from 9.8%, and means the typical UK property now costs £292,598, down from £293,664 the previous month. The market cooled as hopeful homebuyers saw mortgage rates rise, with lenders withdrawing thousands of offers as borrowing costs soared. The average two-year fixed-rate mortgage jumped above 6.5% in October, from below 5% before the mini-budget. Halifax House Price Index to October Photo: Halifax Average prices remain close to record highs, but the recent period of soaring house price inflation may now be over, warns Kim Kinnaird, director of Halifax Mortgages. Kinnaird explains that the rise in UK costs following former chancellor Kwasi Kwarteng’s package of unfunded (and now abandoned) tax cuts was a “significant shock”: While a post-pandemic slowdown was expected, there is no doubt that the housing market took a significant shock as a result of the mini-budget which saw a sudden acceleration in mortgage rate hikes. While it is likely that these 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 consider their options and some would-be homebuyers to pause. Annual house price growth slowed in every region of England except the North East, and also slowed in Northern Ireland, Scotland and Wales. The Halifax survey matches a similar report from Nationwide last week, which also showed a fall in house prices last month. Many economists have predicted that house prices could fall by around 10% next year as the UK slips into recession and households are hit hard by rising energy and food prices. Kinnaird predicts a “much slower period for house prices” as Kwarteng’s successor, Jeremy Hunt, prepares a package of heavy tax increases and spending cuts. “It makes sense that we have also seen consumer attention increase as industry data shows that mortgage approvals and demand for lending are falling. The rising cost of living combined with the already increased affordability of mortgages is expected to continue to weigh on activity levels. With tax increases and spending cuts expected in the Autumn Statement, economic headwinds point to a much slower period for house prices.
THE AGENDA
Important events BETA filters Key Facts (8) UK (9) China (3) Halifax Mortgages (3) In a grim development, the euro zone’s manufacturing sector has now contracted for six months. Construction firms reported a sharp drop in activity, led by the housing sector, according to S&P Global Insight’s latest survey of market managers. Business sentiment fell to the lowest level on record as manufacturing firms posted the fastest decline in new orders since May 2020 and a fresh rise in prices. This pushed the Eurozone manufacturing PMI deeper into contractionary territory, to 44.9 in October from 45.3 in September (50 points = stagnation). The survey painted a bleak picture of the overall health of the eurozone construction sector, says Laura Denman, economist at S&P Global: Future indicators suggest that current trends will likely continue into the future. The 12-month outlook for business fell to one of the lowest levels on record and companies continued to curtail buying activity in line with the current and expected weakening of demand. As we head into the winter months, it will be interesting to see how the eurozone construction sector fares against the current economic landscape.”
The FTSE 250 rose 1%
The London Stock Exchange sign in the City of London. Photo: Kirsty O’Connor/PA In the City, the FTSE 250 index of UK-focused mid-cap companies started the new week on the front foot. The FTSE 250 index jumped 1%, with airline Wizz Air up 5.7% after Ryanair’s profit rose and luxury car company Aston Martin rose 12% to a five-week high. However, the broader FTSE 100 index of blue-chip shares is slightly lower. Retailers and supermarkets are rallying but GSK is down 2.7% after its blood cancer drug Blenrep failed to prove it was better than an existing treatment on the market in a late-stage study. Victoria Scholar, Head of Investments, Interactive Investor says, “Following its best week in nearly two years, the FTSE 100 is trading lower this morning after hopes that China could relax its strict zero-tolerance on Covid were dashed, pushing miners into the red. Oil is also under pressure while gold has retreated from a three-week high. The travel and leisure sector is outperforming thanks to strong results from Ryanair, while Flutter is trading at the top of the UK index after Fox ended its legal battle with the gaming company over the price of FanDuel. Despite disappointing trade data from China with annual exports falling for the first time since May 2020, the Hang Seng continued its rally from Friday, notching another nearly 3%. Jasper Jolly Ryanair has reported a rise in profits to a record €1.4bn (£1.2bn) for the first half of its financial year. The budget airline said it sees no drop in demand for winter air travel after record passenger numbers in the summer. Ryanair reported higher traffic with higher fares than the same period in 2019, before the coronavirus pandemic, the first time it has been achieved since the first Covid-19 lockdowns. The production towers of the ArcelorMittal steel plant near the harbor in Hamburg, northern Germany. Photo: Axel Heimken/AFP/Getty Images In better news, German industrial production rose in September, despite a fall in output at the most energy-intensive factories. Manufacturing output rose 0.6% month-on-month, after falling 1.2% in August, as factories managed to ramp up production despite fears that Germany was slipping into recession. However, there was a 0.9% drop in output from the most energy-intensive industry sectors, where some factories slowed or stopped production because rising energy prices made it uneconomic. On an annual basis, German industrial production increased by 2.6%. September German industrial production beat consensus. Smart economists had collectively expected a slowdown from 2.1% to 2.0% annually. Instead, it ramped up to 2.6% annually from 1.6%. Also, beat the dreaded 🇩🇪 PMI “feeling”. Nycht was surprised. pic.twitter.com/TKNMj8FPkL — Takis Christodoulopoulos (@takis2910) November 7, 2022 ING’s Carsten Brzeski says Germany’s industrial production held up well in September, showing the economy stumbled but did not fall in the third quarter: Global supply chain frictions as well as the impact of low water levels on logistics combined with high energy prices continue to weigh on German industry. The industry didn’t fall off a cliff in the third quarter, but it stagnated. A number of factors will push down the UK housing market, warns Karen Noye, mortgage expert at Quilter: He says there’s little doubt we’ll see house prices fall further, after October’s 0.4% drop, as demand falls and more people look to sell. “After all, costs are rising across the board and as winter approaches and the real impact of rising energy bills approaches, people’s finances will be stretched even further. With mortgage rates rising, many people will have to reconsider their move and could choose to stay put to weather the cost of living crisis, while others will have to move to cheaper properties.
Halixax research shows ‘house prices are turning’
Average UK house prices will fall by between 5-10% over the next 12 to 18 months, the EY ITEM Club predicts. Martin Beck, their chief economic adviser, predicts that the fall in house prices in October will be repeated in the coming months: Although mortgage rates have retreated from the highs seen immediately after the mini-budget, they remain high compared to early-mid September. For example, the current standard variable rate on a Halifax home loan is 5.74%, compared to 3.74% pre-mini-Budget. House prices are still very high by most measures, with average property prices rising by more than £22,000 over the past 12 months and by nearly £60,000, or just over a quarter, over the past three years. Cost of living pressures remain significant and household incomes face an additional challenge from tax rises and government spending cuts in November’s autumn statement, while consumer confidence remains subdued.
House prices fall as the ‘affordability barrier’ rises.
The “rising affordability barrier” is stopping the UK’s dramatic housing market in its tracks, warns Myron Jobson, senior personal finance analyst at interactive investor. Jobson explains that rising interest rates and a slump in the cost of living are weighing on buying activity and buying prices, leading to a 0.4% month-on-month drop in house prices in October. And he fears this affordability problem will worsen: “Rising mortgage rates have become a particular pain point for buyers. The housing market has been hit by turmoil in the mortgage market last month following the botched mini-budget, which sent interest rates soaring and led to some products being temporarily withdrawn from the market. This has pushed many in-demand homeowners to the sidelines. While the mortgage market is on a firmer footing, the possibility of further interest rate hikes to rein in runaway inflation means things could get worse before they get better…
