For the first time in six months, house prices in the UK dropped in March. This was influenced by climbing mortgage rates and ongoing uncertainty around when the Bank of England might begin reducing interest rates, affecting the housing market.
In comparison to the previous month, house values decreased by 1%, which equates to a drop of £2,908, based on the Halifax house price index. The new average price of a home is £288,430. However, when looking at year-on-year data, there has been a slight increase in prices of 0.3% since last March.
These findings by Halifax reflect similar observations made by Nationwide earlier in the week. Nationwide reported that the average home price went down by 0.2% from February to March, settling at £261,142 after adjusting for seasonal variations.
Since the beginning of the year, lenders have been sweetening their mortgage deals. However, financial markets have dialled back their optimism regarding rate cuts because core inflation has remained higher than anticipated.
At the start of the year, mortgage rates saw competition driving average two-year fixed rates down to a low of 5.55%. Yet these deals began to increase, with the average two-year fixed rate going from 5.59% to 5.76% from early February to early March. It currently sits at 5.8%, as reported by Moneyfacts. The average cost for a five-year fixed-rate mortgage also climbed from 5.23% in February to 5.39%.
Kim Kinnaird from Halifax Mortgages commented that, despite the rise in borrowing costs, the market had remained notably persistent. She wasn’t shocked by the monthly decrease following five straight months of growth, especially given the market recalibration after 2022’s steep interest rate hikes.
Kinnaird pointed out that affordability was still a barrier for people wanting to buy and those holding earlier fixed-term deals hadn’t yet fully experienced the impact of the increased interest rates. Therefore, the housing market is still in the process of adjusting, and it’s likely that home prices are being set with these considerations in mind.
She mentioned that house prices have more or less been consistent over the past few years, and are still around £50,000 higher than before the pandemic. Kinnaird suggested that only a minor improvement in affordability is foreseeable, implying that it’s improbable there will be substantial rises in house prices this year.
Real estate agents acknowledge the market’s steady performance. Nicky Stevenson from Fine & Country said that although the property market’s robust activity at the start of spring maintained yearly prices, the monthly decline indicates ongoing market instability.
Stevenson noted that buyers currently have the advantage, and sellers are more willing to negotiate, leading to lower prices in some regions. Guy Gittins of Foxtons added that since the year’s beginning, house prices have slowly increased, a trend propelled by the revived interest of UK homebuyers.
