UK house prices decline for the first time in six months

House prices in the UK declined in March for the first time in six months, according to the latest data from Halifax. The lender reported a 1% drop in prices last month, attributing the decline to higher mortgage rates affecting affordability for potential buyers. The average house price fell by approximately £2,900 to £288,430.

Despite this monthly decrease, house prices remain higher than they were a year ago, with a 0.3% increase in March compared to the previous year, though this is down from a 1.6% annual increase in February.

Kim Kinnaird, director of Halifax Mortgages, noted that the monthly price fall from February to March was “not entirely unexpected, particularly given the market adjustment since interest rates began rising sharply in 2022.” She added, “Despite this, house prices have shown surprising resilience in the face of significantly higher borrowing costs. Affordability constraints continue to challenge prospective buyers, while existing homeowners on cheaper fixed-term deals have yet to feel the full impact of higher interest rates.”

Halifax’s findings are consistent with those of rival lender Nationwide, which also reported a decline in house prices in March. Sarah Coles, head of personal finance at Hargreaves Lansdown, commented that rising mortgage rates had “finally taken a toll on the housing market,” noting that the price momentum from buyers who secured cheaper mortgages in January has now dissipated, leading to the fall in prices.

UK interest rates, which hit record lows during the COVID-19 pandemic, have been on the rise since the end of 2021 as the Bank of England sought to control inflation. This increase in rates has consequently driven up mortgage rates, making borrowing more expensive for home buyers. Mortgage rates peaked last summer and began to fall amid expectations that the Bank of England would start cutting interest rates this year, leading to a surge in housing market activity and the highest number of mortgage approvals since September 2022.

However, uncertainty about the pace at which the Bank of England will reduce rates has stalled mortgage rate cuts, with some lenders even increasing rates again. “The housing market remains sensitive to the scale and pace of interest rate changes, and with only a modest improvement in affordability on the horizon, significant house price increases this year are unlikely,” said Kinnaird.

Halifax’s house price data is based on its mortgage lending and does not include cash buyers or buy-to-let deals. Cash buyers make up about a third of housing sales.

Source: BBC