UK house prices fall at their fastest pace since 2020

UK house prices fell at their fastest pace in two years, according to the latest Nationwide house price index, reflecting the effect September’s disastrous mini-budget had on the UK housing market.

UK house prices fell 1.4% month-on-month in November, following a 0.9% drop in October. That’s the biggest fall since June 2020, which raises the question – is now a good time to buy a house?

Figures showed annual UK house price growth also slowed, down from 7.2% in October to 4.4% in November. The average house now costs £263,788, down from £268,282 the month before.

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Nationwide’s announcement follows data from the Office for National Statistics, which showed house prices stalled in September.

The mini-budget spooked markets and increased borrowing costs, sending mortgage rates up to over 6% – their highest since the 2008 financial crisis. They have since fallen back to around 5%, but demand is likely to remain low for some time as households struggle with higher borrowing costs and rising inflation, which is currently sitting at a 41-year high of 11.1%.

“While financial market conditions have stabilised, interest rates for new mortgages remain elevated and the market has lost a significant degree of momentum,” says Robert Gardner, Nationwide’s chief economist. “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.”

What next for UK house prices?

Whether we’re heading for a crash remains to be seen, but what’s for certain is that the boom we saw over the last two years is definitely coming to an end. The Office for Budget Responsibility predicted house prices will fall 9% over the next two years.

“The market looks set to remain subdued in the coming quarters,” said Gardner. “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.”

Inflation has been driven by higher food and energy costs. Its current level of 11.1% is well above the Bank of England’s target of 2%. The BoE has increased interest rates over the last few months as it attempts to rein it in; the current base rate of 3% is the highest since 2008.

Borrowing costs are likely to remain high for the foreseeable future. The Bank’s chief economist has warned that further increases are on the cards when the Bank next meets on 15 December and the markets are predicting interest rates will hit 5% by next year.

Housing affordability was becoming “more stretched” even before the recent increases in mortgage rates. And even though long-term borrowing rates have fallen back to around 5% from their 6% highs, households remain under pressure from the rising cost of living, which is likely to affect moving plans.

“Instead of suffering the cost of moving during the cost-of-living crisis people are opting to batten down the hatches and ride out the cost-of-living storm,” says Karen Noye, mortgage expert at Quilter.

However Noye thinks the dip might only be temporary “as we adjust to a new cost environment which should eventually ease”. The stamp duty cut announced by Kwasi Kwarteng will remain in place until 2025, and demand looks set to outpace supply for some time. Both factors could lead to a rebound.

For now, first-time buyers might want to “sit on their hands… and wait for prices to bottom out. However, timing the market is no easy feat and it’s unwise to put life on hold if you need to move or buy.”