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Higher energy bills and food prices are also squeezing incomes making it harder to get a home loan.
Robert Gardner, chief economist at Nationwide, said the housing market was “remarkably resilient”; until the “major shock”; of the mini-Budget.
He said: “The number of mortgage applications slumped towards the lows seen at the start of the pandemic as a spike in long-term interest rates quickly fed through to mortgage rates and fundamentally changed the affordability dynamic for prospective buyers.”;
He said that while financial market conditions have now settled again, with long term interest rates returning to the levels seen before the mini-Budget, mortgages could take longer.
He said: “Mortgage rates are taking longer to normalise and activity levels in the housing market have shown few signs of recovery and house prices saw three successive monthly declines since September â the worst run since 2008.”;
Pressure on incomes and higher interest rates next year as well as a shrinking economy are expected to make it hard for the market to gain momentum again, he added.
Higher mortgage rates and tougher borrowing usually dampen demand which means the market cools â with house prices growing at a slower rate or falling.
Between January and August, the average UK house price increased by almost £20,000, from £255,556 to £273,751, according to Nationwide.
There are several different measures of house prices, and the building society’s index is not the only one starting to show a slowdown.
Halifax bank’s index showed house prices fell 2.3% from October to November â the biggest monthly drop in a decade.
And annual house price growth slowed to 4.7% in November, down from 8.2% in the previous month..
Meanwhile, Rightmove said the average home price fell by more than £4,000 in November compared to October â a 1.1% month-on-month drop.
The Office for National Statistics (ONS) said UK house prices were level between August and September this year.
What does it mean for buyers?
Falling house prices could sound like good news for first-time buyers, as it means they are not rising out of reach.
But as mortgage rates are going up too and incomes are squeezed, it could make getting a mortgage harder.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “The uncertain atmosphere will have made many would-be first time buyers think twice before taking the plunge.
“Will they be better off waiting in the hope of a fall in house prices or do they risk repayments rising and making their dream home unaffordable â it’s a tricky balancing act.
“It’s a nasty mix of circumstances that will be off-putting to many first-time buyers.”;
She added: “If we see a relatively soft landing for house prices in the coming months then this may tempt more people back into the market but for the moment many are likely to hang back to see what the coming months bring.”;
Homeowners are likely to see a drop in the value of their home, raising fears of households falling into negative equity.
This is when a house or flat is worth less than when you took out a mortgage on it.
But because prices have gone up so much in recent years, this probably won’t be the case.
Despite recent drops in house prices, year-on-year they’re still up.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected]
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