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UK house prices fall for first time in 15 months after Liz Truss mini-budget

UK house prices fell for the first time in more than a year in October, as the Liz Truss government’s mini-budget wreaked havoc on the housing market, pushing higher mortgage rates.

The average property price was down by 0.9% since the Truss mini-budget, to £268,282, according to Nationwide building society’s latest monthly report, the first snapshot of a tumultuous period. This was the first fall since July 2021 and the largest since June 2020. The annual growth rate slowed sharply from 9.5% to 7.2%.

Robert Gardner, the Nationwide chief economist, said: “The market has undoubtedly been impacted by the turmoil after the Liz Truss announcement, which led to a sharp rise in market interest rates. Higher borrowing costs have added to stretched housing affordability when household finances are already under pressure from high inflation.”

The increase in mortgage rates meant that a first-time buyer (FTB) earning the average wage and looking to buy a typical FTB home with a 20% deposit would experience a rise in their monthly mortgage payment from 34% of take-home pay to 45%, based on an average interest rate of 5.5%. Gardner said this is similar to the ratio prevailing before the financial crisis.

Mark Harris, the chief executive of the mortgage broker SPF Private Clients, said the easing of the crisis in the financial markets since Truss resigned had started to feed through to the mortgage market.

“Some fixed-rate mortgage pricing has dropped accordingly over the past few days, with Barclays, HSBC and Santander, among others, reducing their rates,” he said.

However, interest rates are expected to rise further as the Bank of England seeks to bring down soaring UK inflation, which is at a 40-year high of 10.1.% The Bank’s monetary policy committee is expected to raise rates by 0.75 percentage points on Thursday to 3%.

Such a rate hike could result in mortgage holders on variable rate deals paying hundreds of pounds extra a year in repayments, depending on the size of their loan. Myron Jobson, a senior personal finance analyst at the trading platform Interactive Investor, said: “While anyone on a fixed-term deal is currently protected from rate rises, those approaching the end of their deal are in for a nasty shock when it’s time to remortgage.”

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