House Prices Record Steepest
Monthly Drop in Two Years 

As the escalating living-cost crisis continues to hammer the finances of households across the country, the appeal of getting on the property ladder is apparently dwindling for many. For the first time in four months, average property prices fell slightly in October – down 0.4% compared to the month before.

This is the single sharpest drop recorded since early last year, suggesting that impossibly high property prices are pricing most prospective buyers out of contention.

Even so, economists believe that the full fallout of the disastrous mini-Budget for the property sector has not yet been fully felt.

“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,” commented Kim Kinnaird on behalf of the Halifax.

Data suggests that annual house price growth for October came out at 8.3% – a significant decline from the prior 9.8%. On average, house prices fell by £1,066 between September and October, coming out at £292,598.

Unsurprisingly, the first-time buyer market has been hit hardest of all, as prospective buyers find it increasingly difficult to qualify for High Street mortgages. Many banks have withdrawn their high LTV products entirely – a typical first-time buyer now faces a minimum deposit requirement of around £45,000.

Consequently, annual growth for entry-level properties fell from 10.1% in September to just 7.5% in October.

Elsewhere, many of those who purchased properties in the early stages of the pandemic (when interest rates hit record lows) now face the prospect of falling into negative equity. This occurs when the value of a property becomes lower than the full outstanding debt on the home.

Up to one in seven younger homeowners (within the 16 to 34 age bracket) are likely to fall into negative equity within the next 12 months, according to a study conducted by the Resolution Foundation.

Soaring Mortgage Rates

Affordability on the housing market has been all but wiped out by skyrocketed mortgage rates. According to Moneyfacts, the average two-year fixed-rate deal has leapt from 3.25% in June to around 4.24% in September.

Following Kwasi Kwarteng’s disastrous mini-budget, average two-year fixed-rate mortgages temporarily peaked at 6.65% in mid-October. Nerves were calmed slightly following his swift and unceremonious exit, but mortgage rates are still high – and set to climb further. Some mortgage payers are likely to find the coming months particularly difficult, as their introductory deals come to an end.

According to Morgan Stanley, the vast majority of households on fixed-rate introductory deals that are set to expire within the next six months will find themselves moving from a low 2% interest rate to around 6%. This will leave millions facing exponentially higher monthly mortgage bills, of which many may not be able to meet their payment requirements at all.

Low Deposit Mortgage Products Withdrawn

As lenders become increasingly reluctant to hand out high LTV mortgages in the current financial landscape, data from Moneyfacts suggests that around 65% of all mortgage deals with a 5% deposit requirement have been withdrawn.

This is likely to make it much more difficult for prospective homebuyers on low incomes to come up with the kinds of deposits needed to qualify for the mortgage products still available from mainstream lenders.

First-time buyers are some of the lowest income-earners in the UK and when house prices are up to 10 times the national average of wages in some areas, it has proven extremely difficult to obtain a mortgage,” said James Miles, of The Mortgage Quarter.

“The good news is that lenders are still lending and there are enough loans, but we are seeing mortgages being taken over a longer term to ensure payments are affordable for first-time buyers,”

“I would expect this to continue until the UK can get inflation under control which will then have a knock-on effect of rates coming back down.”