Sharp slowdown in annual house price growth in October

Nationwide’s latest monthly house price index shows property values rose 7.2% in October, a much slower pace than the 9.5% registered in September 2022

Prices fell 0.9% month-on-month – the first monthly decline since July 2021 and the largest since June 2020. And the price of a typical UK home dropped slightly, to £268,282.

Headlines	Oct-22	Sep-22
Monthly Index*	536.9	541.6
Monthly Change*	-0.9%	0.0%
Annual Change	7.2%	9.5%
Average Price (not seasonally adjusted)	£268,282	£272,259

*Seasonally adjusted figure (note that monthly % changes are revised when seasonal adjustment factors are re-estimated).

Commenting on the figures, Robert Gardner, Nationwide's Chief Economist, said: “The market has undoubtedly been impacted by the turmoil following the mini-Budget, which led to a sharp rise in market interest rates. Higher borrowing costs have added to stretched housing affordability at a time when household finances are already under pressure from high inflation.

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

The market looks set to slow in the coming quarters. Inflation will remain high for some time yet 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 extremely uncertain, and much will depend on how the broader economy performs, but a relatively soft landing is still possible. Longer term borrowing costs have fallen back in recent weeks and may moderate further if investor sentiment continues to recover. Given the weak growth outlook, labour market conditions are likely to soften, but they are starting from a robust position, with unemployment at near 50-year lows.

Moreover, household balance sheets appear in relatively good shape with significant protection from higher borrowing costs, at least for a period, with over 85% 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.”

Comment For those whose home is their prime asset, effective planning may be needed to reduce or provide for inheritance tax (IHT). The residence nil rate band (RNRB) will provide a solution for many married couples/civil partners with children, grandchildren or other lineal descendants. However, careful consideration should be given to its use in planning and the fact that it is reduced by £1 for every £2 where the deceased’s estate exceeds £2 million.

For those clients for whom the problem will remain, the answer may be provision for the liability through life assurance (joint lives last survivor for married couples/civil partners) in trust to those who will suffer because of the payment of the IHT.

This information is correct as of 15/11/2022.

The information contained within this article is for guidance only and does not constitute advice which should be sought before taking any action or inaction.

Levels, bases and reliefs from taxation may be subject to change.