House prices dropped in October but soaring mortgage rates have ‘peaked’, say Halifax – how it affects you explained

HOUSE prices fell in October but soaring mortgage rates have peaked, according to Halifax.

Across the UK, house prices fell by 0.4% in October, according to the figures from the lender.

Annual house price growth is still on the up, but it's slowing down.

The annual rate of house price growth slowed to 8.3% in October from 9.9% in September – returning to single digits for the second time since January.

A typical UK property now costs £292,598, according to Halifax’s index.

This is down £1,237 from September when the average property price was £293,835.

But prices are still up on a yearly basis, with the average property worth £22,350 more compared to the same month in 2021.

It comes as EY Item Club predicts a 5-10% fall in house prices next year.

Earlier this month, Nationwide's House Price index found house prices fell by 0.9% in October.

The house price slowdown comes after mortgage rates hit a 14-year high last month amid political and economic turmoil following former Chancellor Kwasi Kwarteng's mini-Budget.

But mortgage rates have fallen back slightly from that peak and could continue to fall over the coming weeks after the Bank of England revised its predictions on how much interest rates will rise in the future.

After the mini-Budget, it had warned that interest rates would hit 6% next year, which caused mortgage lenders to hike fixed bills.

The Bank of England raised interest rates by 75 basis points last Thursday (November 3) to 3%, but it also revised its prediction on how the base rate will peak next year.

The Bank said that rates would hit a maximum of 4.6% - instead of its earlier prediction of 6%.

This opened the way for lenders to reduce some rates.

Lenders price mortgages based on what financial markets predict interest rates will be in the next few years, rather than what the current interest rate is.

After the interest rate hike, Barclays became the first bank to cut bills for mortgage customers on standard variable rates, known as SVRs.

Kim Kinnaird, director of Halifax Mortgages, said: "Average house prices fell in October, the third such decrease in the past four months.

"While the pace of annual growth also continued to ease, average prices remain near record highs.

"Though the recent period of rapid house price inflation may now be at an end, it’s important to keep this in context, with average property prices rising more than £22,000 in the past 12 months."

What will happen to house prices?

Stamp duty cuts, housing shortages, rising interest rates and higher mortgage borrowing costs are likely to lead to "downward pressures" on house prices in the months ahead.

There are several different measures of how house prices change.

Rightmove's latest House Price Index suggests the average price of properties coming to the market rose by 0.9% in October.

It found the average house price hit a new record of £371,158 in October.

The Office For National Statistics (ONS) also releases regular figures on house price data.

Its most recent figures cover the period before the mini-Budget in August, when house prices rose by 13.6% over the year.

The ONS will release its monthly house price index for September and October in November and December.

At the height of the mini-Budget turmoil Credit Suisse warned that house prices could fall by 15% next year.

Some experts have dampened down their predictions for house prices since then as the turmoil subsided.

Indeed, EY Item Club now predicts a 5-10% fall in house prices over next year.

It's worth noting that house price predictions are just that, and no one can know for sure what will happen.

And experts in the field, including Andrew Montlake of Coreco, argue that because the UK has a low supply of housing, predictions that house prices may collapse should be taken with a pinch of salt.

He said: "House prices are set to come under further pressure during the winter months, but the sizeable drops of 10%-15% that some are predicting are frankly implausible given the sheer lack of supply and the fact that the jobs market is still strong.

"A nationwide correction of around 10% is a real possibility after last week's rate rise by the Bank of England.

"In reality, a fall of 10% is just the froth coming off the market and a reversal of the unsustainable growth we have had since the Stamp Duty holiday mid-pandemic."

How does it affect my finances?

How will it affect homeowners?

Falling house prices reduce the amount that homeowners are willing to spend.

This means homeowners may be less inclined to sell up and buy a new property if house prices continue to fall.

Instead, homeowners tend to reign in their spending and save for a brighter day when house prices recover.

Some households may become trapped in "negative equity" when the value of the house is less than the price they paid for it - but this depends on how long they've lived there and when they bought it.

The majority of homeowners are on fixed-rate mortgage deals and over a million homeowners could be in for a bill shock next year when they're forced to eventually come to take out a new mortgage.

The Sun has already explained what you should do after mortgage rates shot up.

There are now fewer fixed mortgages to choose from, and rates will rise - meaning some may experience a drop in affordability, making it harder to get top rates.

If you're wondering whether to fix early now ahead of expected rate hikes, then you'll need to figure out whether it is worth doing so if you have to pay an early repayment charge.

Lenders slap this charge on borrowers if they leave their deal early - it can be up to 5% of your remaining balance, which could be thousands of pounds.

Use a calculator like the one offered by Nous, the cost of living website, which helps you work out if it’s cost-effective to refix early.

In any case, you should seek professional advice from a mortgage broker.

How will it affect first-time buyers?

On paper, a fall in house prices should mean first-time buyers will need a smaller deposit to buy.

However, because mortgage rates remain high, any savings from a fall in house prices could be lost when it comes to mortgage costs.

If you're a first-time buyer you'll need to look carefully at your budget to see if you can definitely afford to take on a mortgage now.

There are now fewer deals on the market to choose from - and less chance for you to shop around for the best one.

Natalie Hines, founder at Sutton Coldfield-based Premier One Mortgages, said a drop in house prices as demand cools could bring some good news for first-time buyers.

She said: "A correction in house prices is what's needed to help get first-time buyers on the property ladder.

"For many first-time buyers, prices have been out of reach for so long.

"A house price correction could give them the leg-up onto the ladder that they need."