House price fall is “first sight of mini-Budget carnage” - claim

A financial expert says the latest house price index, showing the biggest monthly fall for over two years, is the “first sign of carnage” following the Liz Truss mini-Budget.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, says: “The carnage wrought by the mini-budget may have tipped the property market over the edge. The delay in sales being completed means this is just a first glimpse of the horrors that may lie ahead, and it’s looking like the next few months could be something of a nightmare. Prices fell 1.4 per cent in November, their biggest monthly drop in two and a half years.”

Her comment comes following the Nationwide’s latest house price index which shows that - in addition to the monthly fall - annual house price inflation has tumbled from 7.2 per cent to just 4.4 per cent. This follows last month's forecast from the Office for Budget Responsibility that house prices would drop 9.0 per cent over the next two years.

Hargreaves Lansdown’s Sarah Coles continues: “Kwasi Kwarteng’s ill-fated budget, caused a horrible spike in mortgage rates, which spooked the market, and buyers deserted in droves. Zoopla figures have shown that demand plummeted 44 per cent in the following months.

“We’re not seeing anything like the full impact of this in the figures, because on average it takes around three months to complete a sale, so it’s likely to include only around a week of sales agreed after mortgage chaos was unleashed. Even at that point, sales being settled were highly likely to have been funded by mortgages agreed well before everything kicked off, so all we’re seeing is the effect of a sudden and possibly catastrophic loss of confidence.

“In theory, buyers always knew rates would rise, because they were already on their way up. However, the speed and scale of the hikes made them all-too aware of the risk. Meanwhile, fear spread that prices could be on their way down before long.

“Affordability was being stretched to the limit, with only the top 10 per cent of earners in London able to buy with a 20 per cent deposit and a mortgage worth four times their salary. So buyers started to ask themselves why they’d push themselves, and risk being pressed even harder when it came to remortgage, only to risk seeing the value of their property fall away next year.

“In the intervening weeks, mortgage rates have backed off, and are expected to fall further, but the damage may well have been done. Bank of England figures show that mortgage approvals are down – a sure sign of subdued activity – and assuming we get confirmation that we’re in a recession, it could be the nail in the coffin for market confidence.”

A less pessimistic view is being taken by another financial services consultant, Karen Noye at the Quilter consultancy.

She says: “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.

“Those coming to the end of fixed term deals should seek help from lenders or advisers to ensure that they can find the best deal available as the market has shifted significantly and individual circumstances may dictate that other types of mortgages that have been less popular in the past, like tracker mortgages, offer better value for money than a shorter-term fix. Everyone's circumstances are different so seeking advice is key. 

“With the stamp duty cut still in play and a serious lack of stock in the market, we should experience just a dip in the housing market as we adjust to a new cost environment which should eventually ease. When it does, property prices are likely to rebound. It may therefore make sense for first time buyers to sit on their hands for the time being 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.”