The Government’s ‘mini-budget’ on the 23rd of September sent ripples through financial markets that had a profound impact on the mortgage market. Lenders rapidly withdrew products as interest rate expectations rose and the number available was 43% lower by 3rd October, according to MoneyFacts. Much uncertainty as to the medium term impact on mortgage rates remains. Some buyers will be able to delay their purchase, in expectation that interest rates will fall, and this will act as a drag on market activity. But if interest rates hit the levels currently being priced in by markets, this will significantly reduce the budgets of those looking to buy. It will also put considerable financial strain on existing homeowners on variable rate mortgages or those coming to the end of a fixed rate deal. More of our thoughts on this can be read here. 

Reflecting the market before the mini-budget, house prices were unchanged in September, according to Nationwide. This was the first month of no value growth since July 2021. Annual growth fell into single digits for the first time since October 2021, at 9.5% for the year to September 2022. Growth is likely to continue to weaken, but we still expect 7.5% growth for this calendar year.

However, sales activity remained strong in August and September. Over 114,000 transactions were recorded in August, roughly in line with the 2017–2019 average, according to HMRC. Forward indicators of activity, sales agreed and mortgage approvals were also elevated, 12% and 14% above pre-covid levels in September respectively. Demand continued to moderate over the summer, according to the August RICS survey. But it remained above pre-covid levels in September, while the supply of homes for sale was still low, according to Zoopla. 

The current turmoil means we can expect to see much lower activity in October. Many sales dependent on mortgage deals agreed before the 23rd September will complete. But buyer caution may quickly shift the balance of supply and demand over the next few weeks if uncertainty in the mortgage market continues.

Annual house price growth was strongest in South West, up 12.5% in Q3. It was followed by the East and West Midlands, up 12.4% and 12.2% respectively. Growth was weakest in London, up 6.7% annually. All regions saw slowing levels of growth in Q3, with the biggest slowdowns in the East of England and London.