Average UK house price fell by 0.4% in October to £292,598

Homeowners and buyers are reeling after a discredited mini-budget led to higher interest rates and mortgage companies pulling products

October saw the third monthly drop in UK house prices in the last four months. PA

House prices have suffered the biggest monthly fall since early 2021, according to a respected financial index.

The average property value fell by 0.4 per cent, the third month-on-month drop in the last four months, and annual house price growth slowed to 8.3 per cent in October from 9.8 per cent in September.

Homeowners and buyers are unsettled after a discredited government mini-budget saw stocks and pensions slide, led to higher Bank of England interest rates and mortgage companies pulling products.

The government has been trying to tackle a cost-of-living crisis that has seen inflation exceed 10 per cent and energy price spikes.

Across the UK, the average house price in October was £292,598 ($332,622), the lowest figure since May, although typical prices remained near record highs, Halifax said.

The latest month-on-month decrease follows monthly falls of 0.1 per cent in both July and September and a 0.3 per cent increase in August.

“While a post-pandemic slowdown was expected, there's no doubt the housing market received a significant shock as a result of the mini-budget, which saw a sudden acceleration in mortgage rate increases,” said Kim Kinnaird, director of Halifax Mortgages.

“While it is likely that those rates have peaked for now — following the reversal of previously announced fiscal measures — it appears that recent events have encouraged those with existing mortgages to look at their options, and some would-be homebuyers to take a pause.

“Understandably we have also seen consumer caution grow as industry data shows mortgage approvals and demand for borrowing declining.

“The rising cost of living coupled with already stretched mortgage affordability is expected to continue to weigh on activity levels.”

The price growth slowdown for first-time buyers was more notable, Halifax said, falling from 10.1 per cent in September to 7.5 per cent in October.

Given the greater challenges for first-time buyers in raising a deposit, plus tighter requirements for higher loan-to-value mortgages, the sharper slowdown in prices was not surprising, Halifax said.

Last week, the Bank of England increased the base interest rate to 3 per cent from 2.25 per cent — the biggest rise in almost three decades.

That was also the latest in a string of base rate increases, meaning that since December last year the average monthly tracker mortgage payment will have increased by £284.17 in total, according to figures from trade association UK Finance.

Alice Haine, a personal finance analyst at Bestinvest, said: “With inflation at a 40-year high of 10.1 per cent, interest rates at 3 per cent, the economy slowing and the mortgage market still reeling from the effects of Liz Truss's short tenure as prime minister, affordability is very much in the spotlight, with buyers forced to confront whether now really is the right time to buy.”

North London estate agent Jeremy Leaf said: “We are not seeing any collapse in pricing or sales agreed.”

Nathan Emerson, chief executive of estate agent body Propertymark, said more homes for sale are coming to the market “which is providing buyers with a greater choice”.