Oct. 7, 2022, 9:39 a.m. EDT

At a peak? U.K. house prices dip in September as mortgage rates start to climb

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By Anviksha Patel

The U.K housing market is starting to cool down after house prices fell in September from a record high in August, as rising interest rates put “significant downward pressure” on mortgage rates, lender Halifax said on Friday.

According to its monthly house price index, Halifax said prices dropped 0.1% in September to an average of £293,835 ($326,411), and annual rate of growth fell further to 9.9% in September, from 11.4% in August, to reach the slowest rate since January.

“It’s a fairly safe bet that U.K. house prices have now peaked,” said Tom Bill, head of U.K. residential research at estate agency Knight Frank, adding that he expects prices to fall over the next two years.

Interest rates on typical two-year and five-year fixed-rate mortgages have been on the rise for months but shot up since the mini-budget last month and hit 14-year highs this week.

On Friday, the rate on a typical two-year fixed rate mortgage hit 6.16%, having started the week at 5.75%, according to Moneyfacts, up from 4.74% on the day of the mini-budget.

Five-year fixed-rate mortgages also have climbed with the average rate now standing at 6.07%, from 6.02% on Thursday.

Unlike the U.S., there are very few 30-year mortgages in the U.K.

Fears of uncertainty over future interest rate policy sparked over 1,000 mortgage deals to be pulled from the U.K market.

Bill added: “The impact of rising mortgage rates will begin to hit demand and spending power in coming months, which we believe will lead to a fall of 10% over the next two years for U.K. prices.

“We may see mortgage rates fall to some extent if financial markets become more reassured by the government’s economic plan but the events of the last fortnight have been a reminder that the era of ultra-low rates is coming to an end.”

Not everyone was so sure.

“Predicting what happens next means making sense of the many variables now at play, and the housing market has consistently defied expectations in recent times,” said Kim Kinnaird, director at Halifax Mortgages.

Halifax, which is one of U.K’s biggest mortgage lenders, increased its rates on a set of deals for new borrowers to over 5%.

EU prices slow

Across the EU, statistics agency Eurostat reported slower growth for the first time in two years. House prices in the EU by rose by 9.3% between Q2 of 2022 and 2021, down from the annual rise of 9.8% in the previous quarter.

In a speech on Friday at the Securities Industry Conference, Dave Ramsden, one of the members of the Bank of England’s monetary policy committee, spoke about the shocks of recent financial market turbulence and its impact on inflation.

Ramsden said that the MPC must “stay the course” to keep control of inflation, “however difficult the consequences might be for the economy.”

He added that the popularity of fixed-rate products in recent years mean that they now represent 95% of new lending.

Two-year fixed-rate products are particularly popular, he said, and the cost to the lenders who provide them is derived from two-year interest rate swaps.

Swap rates have risen from 0.5% a year ago to peaks of 6%.

“Markets continue to be volatile and so extracting any signals from the noise is even more challenging than usual,” he added.

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