Annual UK house price inflation slowed to 7.2% in October, down from 9.5% in September, according to the latest Nationwide House Price Index.

Prices fell by 0.9% month-on-month, after taking account of seasonal effects, which was the first drop in prices since July 2021, and the largest since June 2020.

The fall has taken the average price of a UK house to £268,282, down from £272,259 in September.

Nationwide suggested that the housing market has “undoubtedly” been impacted by the turmoil that followed the government’s mini-Budget in September, which led to a sharp rise in market interest rates.

Chief economist at Nationwide, Robert Gardner, said that higher borrowing costs have also added to “stretched housing affordability”, at a time when household finances are already under pressure from high inflation.

“The increase in mortgage rates meant that a prospective first-time buyer earning the average wage and looking to buy a typical first-time buyer home with a 20% deposit would see their monthly mortgage payment rise from circa 34% of take-home pay to circa 45%, based on an average mortgage rate of 5.5%. This is similar to the ratio prevailing before the financial crisis.

“The market looks set to slow in the coming quarters. Inflation will remain high for some time yet 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.”

Gardner also warned that the outlook for the market remains “extremely uncertain”, with much to deepen on how the broader economy performs. However, he did also say that a “relatively soft landing” is still possible.

“Longer-term borrowing costs have fallen back in recent weeks and may moderate further if investor sentiment continues to recover,” he added. “Given the weak growth outlook, labour market conditions are likely to soften, but they are starting from a robust position, with unemployment at near 50-year lows.

“Moreover, household balance sheets appear in relatively good shape with significant protection from higher borrowing costs, at least for a period, with over 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.”

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