House prices fall as mortgage rates rise

Mortgage rates have risen to highs of around 6% in recent weeks but there is some good news for buyers, with industry experts suggesting that rates may have peaked and new figures showing a drop in average house prices.

Halifax says that average house prices fell by 0.4% last month, while Nationwide puts the decrease at 0.9%.

Compared with a year ago, prices are still higher -- but annual house price growth is slowing.

"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," said Kim Kinnaird, director of Halifax Mortgages.

"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."

Kinnaird added that economic headwinds currently point to "a much slower period for house prices".

That's a view shared by economic forecasting group the EY ITEM Club, which said that with interest rates on mortgages still high and cost of living pressures on many households intense, October's fall in house prices is likely to be a precursor of further decline.

"However, the extent of the likely drop in house prices has retreated over the last few weeks," said Martin Beck, chief economic advisor to the EY ITEM Club.

"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%."

Property website Zoopla is predicting a reduction in house prices of up to 5% over the next year. This would mean the average UK property would lose eight months of capital gains, with London (13 months) set to see the biggest loss of value and Wales the least (six months).

"The most likely outcome for 2023 is that we see a fall in mortgage rates towards 4% with a modest decline in house prices of up to 5%," said Richard Donnell, executive director at Zoopla. "The labour market remains strong and the supply of homes for sale is below average creating a scarcity of homes for sale that will support pricing."

Due to the unpredictable nature of the mortgage market at present, if you're looking to buy a property or remortgage it's important to seek independent advice to assess the options available to you, financial information website Moneyfacts noted.