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UK house price growth slows to 4.4% as mini Budget turbulence continues

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Written by: Anna Sagar
01/12/2022
Annual house price growth in the UK slowed to 4.4% in November, down from 7.2% in the prior month.

According to Nationwide’s latest house price index, this continues a trend from August this year, when annual house price growth was pegged at 10%.

Since then annual house price growth has followed a downward trajectory, coming to 9.5% in September and 7.2% in October.

The average house price in the UK stands at £263,788, down from £268,282 in October. However, it is still up on figures from November last year and the year before, at £252,687 and £229,721 respectively.

Month-on-month prices fell by 1.4% in November, which is up from negative 0.9% in October.

Nationwide said that this was the biggest monthly fall since June 2020.

Nationwide: ‘Mini Budget impacting market’

Robert Gardner, Nationwide’s chief economist, said that the fallout from the mini Budget had continued to impact the market in November pointing to the “sharp slowdown” in annual house price growth.

He continued that financial market conditions had stabilised, interest rates for new mortgages “remain elevated” and the market has “lost a significant degree of momentum”. He added that housing affordability for prospective buyers and home movers was more stretched.

Gardner added: “The market looks set to remain subdued in the coming quarters. Inflation is set to remain high for some time 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 uncertain, and much will depend on how the broader economy performs, but a relatively soft landing is still possible.”

He noted that longer term borrowing costs had fallen in recent weeks and could decrease further, especially if investors continue to lower expectation of base rate rises.

Gardner said that labour market conditions were likely to soften, given the weak growth outlook, but was starting from a point of an unemployment low.

He added: “Moreover, household balance sheets remain in good shape with significant protection from higher borrowing costs, at least for a period, with around 85 per cent 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.

Affordability more stretched across the UK

Nationwide also explored how affordability was becoming more stretched across the UK, using regional income data to calculate what income a prospective buyer would need if they wanted to buy a typical first-time buyer property with a 20 per cent deposit and four times their income.

Broadly, hypothetical buyers need to be higher up the income scale the further South they went in the UK.

In Scotland and North of England, they would need to be in the 30th income percentile, whereas in South West they would need to be in the 80th percentile and above 90th percentile for London and the South East.

Gardner said some regions have experienced a “more pronounced deterioration” in affordability, pointing to Wales with potential borrowers now needing to be the 60th income percentile in 2022, compared to 40th percentile in 2019.

He added that in Scotland and the North region, the typical buyer was now in the 30th percentile, compared to 25th percentile in 2019. In East Anglia, East Midlands and West Midlands, the typical buyer has moved from the 60th percentile to the 70th percentile.

He explained: “A higher income percentile signals that a larger proportion of people are priced out of the market or needing to borrow a greater income multiple to buy a home. Conditions remain most stretched in the capital; in 2019 the typical London buyer was already located above the 90th income percentile.

“The surrounding South East region has now joined it, with the typical buyer moving from the 80th income percentile in 2019.”

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