The 1.4% month-on-month drop is the biggest fall since June 2020 and follows a previous 0.9% drop in October, seeing the price of an average home in November settle at £263,788 from £268,282 in October (not seasonally adjusted).
Robert Gardner, Nationwide's Chief Economist, comments: “The fallout from the mini-Budget continued to impact the market, with November seeing a sharp slowdown in annual house price growth to 4.4%, from 7.2% in October. Prices fell by 1.4% month-on-month, after taking account of seasonal effects, the largest fall since June 2020.
“While financial market conditions have stabilised, interest rates for new mortgages remain elevated and the market has lost a significant degree of momentum. Housing affordability for potential buyers and home movers has become much more stretched at a time when household finances are already under pressure from high inflation.
“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.
“Longer term borrowing costs have fallen back in recent weeks and may moderate further, especially if investors continue to revise down their expectations for the future path of Bank Rate. Given the weak growth outlook, labour market conditions are likely to soften, but they are starting from a robust position with unemployment still near 50-year lows.
“Moreover, household balance sheets remain in good shape with significant protection from higher borrowing costs, at least for a period, with around 85% 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 becoming more stretched
“Even before the recent increases in mortgage rates, affordability was becoming more stretched across the UK, though with considerable regional variation.
“To explore how this is impacting potential buyers we used regional income data to calculate where in the income distribution a prospective purchaser would sit if they were purchasing the typical first-time buyer property in each region, with a 20% deposit and borrowing four times their income. If the typical buyer is located higher in the income distribution it suggests affordability is more stretched, with more people priced out of the market.
“In broad terms, the picture that emerges is that this hypothetical typical buyer is located further up the income spectrum as you go from the north to south of the country.
“For example, in Scotland and the North of England, this typical buyer would be in the 30th income percentile, while in the South West they would be in the 80th percentile, and above the 90th percentile in London and the South East.
"Some regions have seen a more pronounced deterioration in affordability in recent years than others. In Scotland and the North region, the typical buyer is now located in the 30th percentile, compared with the 25th percentile in 2019, before the pandemic struck. Similarly, in East Anglia, East Midlands and West Midlands, the typical buyer has moved from the 60th percentile to the 70th percentile.
“However, the biggest deterioration in affordability since 2019 has been in Wales, with the typical buyer now located in the 60th income percentile, compared to the 40th percentile in 2019.
“A higher income percentile signals that a larger proportion of people are priced out of the market or need 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.”
Nathan Emerson, Chief Executive of Propertymark, said: “Our agents report a rebalance within the market as competition for homes starts to slow, so it is no surprise that the house price growth is also slowing in line with this.
“This knock-on effect being seen in prices achieved is positive as we need to see this settle in line and a return to a more realistic and sustainable market. However, prices remain higher than last year, and with the Stamp Duty threshold raised, it remains a good time to buy or sell a property.”
Tom Bill, head of UK residential research at Knight Frank, said: “The impact of the mini-Budget continued to reverberate in November, with the largest monthly fall in house prices since the early days of the pandemic. Financial markets have been reassured by the new government’s economic plan but the mortgage market is playing catch up.
"Mortgage rates should keep edging downwards as the effects of the mini-Budget wash through the system, which should settle the nerves of buyers and sellers, even as a 13-year period of ultra-low borrowing costs comes to an end. We expect house prices to fall by 10% over the next two years and the reality of higher rates will bite more after Christmas. Mortgage offers made before the mini-Budget will begin to lapse and increase downward pressure on prices from 2023.”
Emma Cox, MD of Real Estate at Shawbrook, comments: “The property market is coming to the end of a challenging year, with uncertainty the predominant theme. Demand has largely slowed which has had a knock-on impact on asking prices. Incentives introduced in the latest Chancellor’s Budget have yet to make an impact among first-time buyers, many of whom are putting off plans and choosing to stay renting.
“With prices expected to fall further next year before stabilising, there could be deals on the table for savvy buyers. Professional property investors in particular could take advantage of this opportunity to expand their portfolios. And with greater demand in the rental market, quality rental properties will likely prove popular.”
Matthew Thompson, Head of Sales at Chestertons, explains: “Despite being a quieter time of year, the November market in London has been fairly active after the initial panic caused by the mini-budget. As mortgage rates have settled, buyers have come to terms with higher interest rates and realise that, in the majority of cases, it still makes sense to buy.
"Compared to November 2021, our branches have experienced a 23% uplift in the number of properties being sold, however, there has been a significant downward trend in market appraisals being carried out. This suggests that, although buyer sentiment is fairly strong, some sellers are still holding off due to economic uncertainty.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: "Prices are softening but could have fallen further were it not for those two stalwarts –shortage of supply and strong employment, despite continuing concerns over the rising cost of living and particularly mortgage repayments.
"The problem is not existing sales, the overwhelming majority of which are proceeding, but new business. However, some buyers are returning now that mortgage rates are beginning to fall but they are more aware of their stronger position so are negotiating hard."
Tomer Aboody, director of property lender MT Finance, says: "With the full impact of the Kwasi Kwarteng Budget being felt, the fall in prices isn't surprising as markets reacted sharply, resulting in higher mortgage rates and lack of confidence.
"As the market continues to stabilise since Rishi Sunak took over, we should see a steadier picture going forward.
"With buyers stretched when it comes to affordability, the government needs to assist in helping banks be more flexible in their lending and helping buyers continue to move. Could the government potentially help by writing off some mortgage payments against tax for example?"
