House prices fall for first time in 15 months as interest rates expected to rise

ITV News consumer editor Chris Choi reports on the latest fluctuations in the housing market

House prices dropped month-on-month for the first time in 15 months in October, according to Nationwide.

The 0.9% fall marked the first monthly decline since July 2021 and was the biggest decrease since June 2020.

Annual house price growth also slowed sharply to 7.2% in October, from 9.5% in September, Nationwide Building Society said.

Across the UK, the average house price in October was £268,282 .

The housing market looks set to slow in the months ahead, the society added.

The drop came as interest rates are expected to rise to 3%, which could drive house prices to fall further.

But economists said the housing market's future is "extremely uncertain" to predict.

Robert Gardner, Nationwide’s chief economist, said: “The market has undoubtedly been impacted by the turmoil following the mini-budget, which led to a sharp rise in market interest rates.

The fall in house prices came as economists expect interest rates to rise by 0.75% to 3%. Credit: ITV News

“Higher borrowing costs have added to stretched housing affordability at a time when household finances are already under pressure from high inflation.

“Inflation will remain high for some time yet and (the base 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 extremely uncertain, and much will depend on how the broader economy performs, but a relatively soft landing is still possible."

Jonathan Hopper, chief executive of Garrington Property Finders, explained the drop in prices and said: “Sellers who just months ago could take their pick of offers are now biting off the hand of a strong, proceedable buyer – even those asking for a price reduction.”

Bank of England sells off gilts as interest rates expected to rise

The fall in house prices came as economists issued predictions of more interest rates rises expected to reach 0.75% to 3%, in what would be the biggest uplift in 33 years.

ITV News' Business and Economics Editor Joel Hills reports another interest rate hike would represent a signal that the UK's economy was "in the foothills of something terribly serious."On Tuesday, the Bank of England began the sale of its massive gilt holdings, highlighting the cost of government debt.

The Bank of England is expected to raise interest rates again soon. Credit: PA

The central bank is beginning the first sale of its near £850 billion of UK government bonds – or gilts – that were built up under its quantitative easing (QE) programme - a monetary policy introduced in a bid to ease the blow of the 2008 financial crisis.

The Bank’s bond sale follows a tumultuous past couple of months for financial markets after former prime minister Liz Truss and ex-chancellor Kwasi Kwarteng sparked a rout in gilts and sent the pound tumbling to an all-time record low against the US dollar.

The Bank has stuck to its guns with plans to begin unwinding QE through the sale of gilts, despite calls for it to be halted to avoid risking another gilt sell-off.

It pushed back the start twice, from October 3 until the end of October and then to November 1 so as not to clash with the originally planned date for the chancellor’s fiscal statement, although this will now take place on November 17.

Liz Truss and Kwasi Kwarteng Credit: Stefan Rousseau/PA

Gilt prices have since recovered – thanks largely to emergency gilt buying action from the Bank and a host of government climb downs on unfunded tax cuts, with a new Prime Minister and Chancellor at the helm.

But the Bank has confirmed it will focus its gilt sales under the plan – known as quantitative tightening (QT) – to only short and medium dated bonds in an effort not to destabilise gilts.

Yields on 30-year gilts now stand at 3.6% but rose as high as 5.2% at the height of the mini-budget chaos.

Labour claimed families were now paying more than £530 extra on their mortgages due to Ms Truss' economic policies.

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