(Bloomberg) --

UK house prices fell 0.1% in September, with more pressure on the property market expected following a jump in mortgage rates, lender Halifax said.

The dip was the second in three months and left the annual growth rate at 9.9%, its weakest since January. 

The figures suggest the housing market was cooling even before Chancellor Kwasi Kwarteng plunged the mortgage market into chaos by announcing a huge tax giveaway in his Sept. 23 mini-budget. 

That led to a sharp increase in borrowing costs, with the average two-year fixed-rate loan reaching 6% in recent days for the first time since 2008, adding hundreds of pounds to annual payments and deepening the cost of living crisis for homeowners.

The average UK house price is now £293,835 ($327,000), Halifax said. In the past three months, prices have risen by around £250 compared with a gain of more than £10,000 over the previous quarter, Halifax said. 

More Pressure

The slowdown suggested “the housing market may have already entered a more sustained period of slower growth.”

Kim Kinnaird, director of Halifax Mortgages, said: “The prospect of interest rates continuing to rise sharply amid the cost of living squeeze, plus the impact in recent weeks of higher mortgage borrowing costs on affordability, are likely to exert more significant downward pressure on house prices in the months ahead. This will undoubtedly be a cause of some concern for homeowners.”

The interest-rate blow is expected to eclipse the boost from a cut in stamp duty on property purchases, which was part of the annual £45 billion giveaway unveiled by Kwarteng. 

Analysts at Credit Suisse say that house prices “could easily fall 10% to 15,” and others including Niraj Shah of Bloomberg Economics predict double-digit declines. HSBC is predicting falls of 7.5% nationally and 15% in London.

That will reverse some of the gains made since the start of the pandemic, a period that has seen house prices soar 23%. The factors that boosted the market then -- a strong labor market and shortages of homes for sale -- may continue to provide some support, Halifax said.

Of the UK’s 12 regions, 11 recorded slower growth than in August, with the North East proving the exception. London continues to have the slowest rate of annual growth, with house prices rising 8.1% over the last year.

Halifax’s core findings chime with those of rival mortgage lender Nationwide Building Society, which said house prices saw no growth for first time in more than a year in September.


©2022 Bloomberg L.P.