£1,000 wiped off average home as house prices fall again

The first-time buyer market has been hardest hit. Annual growth for entry-level properties slowed to 7.5pc, down from 10.1pc in September. This is because first-time buyers have been hit by tighter credit requirements for higher loan-to-value mortgages.

It comes as younger homeowners – many of whom bought during the peak of the pandemic property boom when interest rates were at record lows – are now most at risk of getting into negative equity. This is when homes become worth less than their owners borrowed to pay for them.

The Resolution Foundation, a think tank, warned that more than one in seven (16pc) 16 to 34-year-olds will fall into low or negative equity. This calculation was based on Lloyds Bank’s central forecast of an 8pc drop in house prices over the next two years.

Soaring mortgage rates have destroyed affordability. The average rate on a two-year fix jumped from 3.25pc at the start of June to 4.24pc at the beginning of September, according to Moneyfacts, a data company.

Then rates were turbocharged as markets panicked in the wake of the mini-Budget. Average two-year fixed-rate mortgages hit a peak of 6.65pc on October 20. The full impact of this is yet to flow into house prices.

Tom Bill, of Knight Frank estate agents, said: “It’s a fair assumption that house prices have peaked following growth of more than 20pc during the pandemic.” 

Knight Frank expects house prices will fall back to levels seen in the summer of 2021 – meaning more than a year of growth will be lost.

Annual house price growth slowed in every region in England except the North East.

In Wales, house price growth slowed from 14.4pc to 11.7pc. Scottish house price growth cooled from 8.3pc to 7.5pc.

But values are still exceptionally high. Across the UK, average prices have climbed £22,000 in the last 12 months and by 25.7pc over the past three years.