While the 0.4% month-on-month fall in Halifax’s measure of house prices in October was lower than the Nationwide gauge, it was still the steepest decline since February 2021 and left annual growth at an 18-month low.
With interest rates on mortgages still high and cost of living pressures on many households intense, October’s fall in value is a likely precursor of further decline.
However, as the market calms, the Bank of England signals that rates won’t rise as much as some previously expected and mortgage rates fall from September’s peak, the extent of the prospective decline in property values has reduced.
All in all, the EY ITEM Club expects average prices to fall between 5-10% over the next 12 to 18 months.
Martin Beck, chief economic advisor to the EY ITEM Club, says: “Halifax’s measure of house prices concurred that house prices in October would fall. Although the 0.4% month-on-month decline in the Halifax measure wasn’t as marked as Nationwide’s 0.9% fall, it was the steepest fall since February 2021, as well as being the third decline in four months, pushing down annual growth to 8.3% from 9.8% in September.
“October’s fall is likely to be repeated in coming months. Although mortgage rates have retreated from the highs seen just after the mini-Budget, they remain elevated compared to early-mid September. For example, the current standard variable rate on a Halifax mortgage is 5.74%, compared to 3.74% pre-mini-Budget. House prices are still very high on most metrics with average property prices having risen more than £22,000 in the past 12 months, and by almost £60,000, or just over a quarter, over the last three years. Cost of living pressures remain significant, and household incomes face an added challenge due to tax rises and public spending restraint in November’s Autumn Statement, while consumer confidence remains depressed.
“However, the extent of the likely drop in house prices has retreated over the last few weeks. Financial markets have calmed and the government’s change of tack on fiscal policy meant the Bank of England raised interest rates last week to a more modest extent than investors had previously been expecting. The Bank also pushed back against the extent to which markets think rates will rise further, a move which is expected to cause mortgage rates to fall back further.
“The EY ITEM Club expects average property prices to fall further, although the decline is likely to be restricted to around 5%-10%.”