According to Nationwide’s latest house price index, this continues a trend from August this year, when annual house price growth was pegged at 10 per cent.
Since then annual house price growth has followed a downward trajectory, coming to 9.5 per cent in September and 7.2 per cent in October.
The average house price in the UK stands at £263,788, down from £268,282 in October. However, it is still up on figures from November last year and the year before, at £252,687 and £229,721 respectively.
Month-on-month prices fell by 1.4 per cent in November, which is up from negative 0.9 per cent in October.
Nationwide said that this was the biggest monthly fall since June 2020.
Nationwide: ‘Mini Budget impacting market’
Robert Gardner, Nationwide’s chief economist, said that the fallout from the mini Budget had continued to impact the market in November pointing to the “sharp slowdown” in annual house price growth.
He continued that financial market conditions had stabilised, interest rates for new mortgages “remain elevated” and the market has “lost a significant degree of momentum”. He added that housing affordability for prospective buyers and home movers was more stretched.
Gardner added: “The market looks set to remain subdued in the coming quarters. 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.
“The outlook is uncertain, and much will depend on how the broader economy performs, but a relatively soft landing is still possible.”
He noted that longer term borrowing costs had fallen in recent weeks and could decrease further, especially if investors continue to lower expectation of base rate rises.
Gardner said that labour market conditions were likely to soften, given the weak growth outlook, but was starting from a point of an unemployment low.
He added: “Moreover, household balance sheets remain in good shape with significant protection from higher borrowing costs, at least for a period, with around 85 per cent of mortgage balances on fixed interest rates. Stretched housing affordability is also a reflection of underlying supply constraints, which should provide some support for prices.
Affordability more stretched across the UK
Nationwide also explored how affordability was becoming more stretched across the UK, using regional income data to calculate what income a prospective buyer would need if they wanted to buy a typical first-time buyer property with a 20 per cent deposit and four times their income.
Broadly, hypothetical buyers need to be higher up the income scale the further South they went in the UK.
In Scotland and North of England, they would need to be in the 30th income percentile, whereas in South West they would need to be in the 80th percentile and above 90th percentile for London and the South East.
Gardner said some regions have experienced a “more pronounced deterioration” in affordability, pointing to Wales with potential borrowers now needing to be the 60th income percentile in 2022, compared to 40th percentile in 2019.
He added that in Scotland and the North region, the typical buyer was now in the 30th percentile, compared to 25th percentile in 2019. In East Anglia, East Midlands and West Midlands, the typical buyer has moved from the 60th percentile to the 70th percentile.
He explained: “A higher income percentile signals that a larger proportion of people are priced out of the market or needing to borrow a greater income multiple to buy a home. Conditions remain most stretched in the capital; in 2019 the typical London buyer was already located above the 90th income percentile.
“The surrounding South East region has now joined it, with the typical buyer moving from the 80th income percentile in 2019.”
Fall in prices ‘not surprising’
Tomer Aboody, director of property lender MT Finance, said that with the “full impact” of the mini Budget being felt, the fall in prices, “isn’t surprising as markets reacted sharply, resulting in higher mortgage rates and lack of confidence”.
He added: “As the market continues to stabilise since Rishi Sunak took over, we should see a steadier picture going forward.
“With buyers stretched when it comes to affordability, the government needs to assist in helping banks be more flexible in their lending and helping buyers continue to move. Could the government potentially help by writing off some mortgage payments against tax for example?”
Benjamin Blyth, founder of Leicester-based Houz Mortgages, agreed that few would be surprised that the market slowed in November as the mini Budget “took the wind out of its sails and then some”.
He also agreed that affordability was a “real issue”, noting that several of his clients had put their plans on hold, hoping for falling house prices and lower fixed rates in the New Year.
Gary Boakes, director of Salisbury-based mortgage broker, Verve Financial, said: “Subdued is probably an understatement. The purchase market pretty much evaporated in the hours and days following the mini Budget, as lenders hiked their rates and uncertainty gripped the nation.
“With inflation still rising and the base rate almost certainly set to be raised again this month, in November people were waiting to see what would happen.”
He added that fixed rates were starting to edge down, which could make buyers “more confident”.
“First-time buyers seem to be the most active demographic within the market at present. Though mortgage rates are higher, rental payments are bordering on the obscene and first-time buyers know they hold all the aces when it comes to negotiating with sellers,” he noted.
Boakes said that even in September, he had seen a larger number of buyers secure deals under the asking price and with house price falls expected next year this trend could continue.
“Ironically, house prices will fall to where they probably would have been if we hadn’t had the Covid boost of the past two and a half years, which could be a worry for people who have bought with five to 10 per cent deposits,” he explained.
Buy-to-let purchase activity likely to fall
Blyth said that it was almost certainly a buyers’ market but only a small percentage of those buyers would be landlords.
“Landlords have lost tax perks in recent years and they now face losing the ability to efficiently draw income via dividends for limited company buy-to-lets, along with the risk of lower Capital Gains Tax allowances,” he noted.
He added: “Combined with the increase in rates, fees and stress tests on buy-to-let mortgages, many property investors are holding back for now, which is no bad thing for first-time buyers seeking to escape the rental market.
“First-time buyers face less competition as landlords lick their wounds. I don’t believe we’ll see a significant house price crash like we did back in 2008. Lenders have funds and are lending sensibly and there simply isn’t enough supply, which will support prices. This should keep house prices from plummeting and may result in the relatively soft landing the Nationwide refer to.”
