Halifax has reported that average house prices fell by -0.4% in October, compared to -0.1% in September.
The annual rate of growth has dropped to +8.3% (from +9.8%).
The house price index also revealed that the typical UK property now costs £292,598 (down from £293,664 in September).
Meanwhile, the rate of growth slowed in all but one region in England during October, with a similar slowing trend in Northern Ireland, Scotland, and Wales.
Kim Kinnaird, director of Halifax Mortgages, said: “Average house prices fell in October, the third such decrease in the past four months. The drop of -0.4% is the sharpest we have seen since February 2021, taking the typical property price to a five-month low of £292,598. While the pace of annual growth also continued to ease, to +8.3% compared to +9.8% in September, average prices remain near record highs.
“Though the recent period of rapid house price inflation may now be at an end, it’s important to keep this is context, with average property prices rising more than £22,000 in the past 12 months, and by almost £60,000 (+25.7%) over the last three years, which is significant.
“While a post-pandemic slowdown was expected, 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. While it is likely that those 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 look at their options, and some would-be homebuyers to take a pause.
“Understandably we have also seen consumer caution grow, as industry data shows mortgage approvals and demand for borrowing declining. The rising cost of living coupled with already stretched mortgage affordability is expected to continue to weigh on activity levels. With tax rises and spending cuts expected in the Autumn Statement, economic headwinds point to a much slower period for house prices.
“While certain longer-term, structural market factors which support higher house prices – like the shortage of available properties for sale – are likely to remain, how significantly prices might ultimately adjust will also be determined by the performance of the labour market.
“Currently joblessness remains historically low, but with growing expectations of the UK entering a recession, unemployment is expected to rise. Whilst it may not spike to the same extent as seen in previous downturns, history tells us that how this picture develops in the coming months will be a key determinant of house price performance into next year and beyond.”
Karen Noye, mortgage spokesperson at Quilter, added: “Despite the challenges of the past few years, the housing market has managed to maintain its momentum. However, it looks to have finally met its match as the impact of the mini-budget and the ongoing cost-of-living crisis proved too heavy for prices to continue rising. The pace of annual growth has slowed considerably as a result, up by 8.3% in October compared to 9.8% in September.
“It remains to be seen just how far house prices might drop, but there are several factors that could have an impact. Many are looking to the autumn budget for clarity, and the market reaction could help to reduce inflation in the longer term and put a halt to rising interest rates. However, the number of people facing huge increases in their mortgage payments is growing and could become unmanageable for some.
“One of the few policies left standing from the mini-budget was the cut to stamp duty. If this remains in place as expected, it could lower the size of the house price drop as people may opt to take advantage of the tax saving despite the economic backdrop. However, soaring inflation, rising interest rates and high energy bills are putting a hold on many people’s plans to move.
“Ultimately, costs are rising across the board and as the winter draws in and the real impact of rising energy bills hits, people’s finances will be stretched even further. With mortgage rates rising, many people will need to reconsider moving home and could opt to stay put to ride out the cost-of-living crisis instead, while others will need to move into cheaper properties. As demand falls and the level of stock increases, we will no doubt see a further drop in house prices.”
