UK house prices fall for first time in six months as mortgage costs bite

House prices fell for the first time in six months in March amid rising mortgage rates, according to Britain’s biggest mortgage lender.

A typical home now costs £288,430, around £2,900 less than last month, said Halifax.

The typical property value fell by 1% month-on-month, following a rise of 0.3% in February. Property prices increased by 0.3% annually in March, slowing from an increase of 1.6% in February.

Halifax mortgages director Kim Kinnaird said: “Affordability constraints continue to be a challenge for prospective buyers, while existing homeowners on cheaper fixed-term deals are yet to feel the full effect of higher interest rates.

“This means the housing market is still to fully adjust, with sellers likely to be pricing their properties accordingly.”

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Markets are pricing in a potential first cut in interest rates by June, and a total of three quarter-point reductions by December.

Kinnaird predicted that the housing market will remain subdued this year: “Taking a slightly longer-term view, prices haven’t changed much over the past couple of years, moving in a narrow range since the spring of 2022, and are still almost £50,000 above pre-pandemic levels.

“Looking ahead, that trend is likely to continue.”

Analysts said the latest fall in house prices show that mortgage affordability has become “absolutely pivotal” to buyers.

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Imogen Pattison, assistant economist at Capital Economics, said: “The first decline in the Halifax house price index in six months confirmed that the slight rise in mortgage rates since the start of the year has caused house prices to stall.

“Looking ahead, we expect mortgage rates to remain higher than in January and February and hover at just under 5% over the coming months, which will subdue demand and prevent further gains in house prices. But given public house price expectations are positive, we doubt prices will fall much either.”

The average rate on a two-year fixed deal this week stood at 5.74%, while for a five-year deal, rates came in at 5.24%, according to figures from Uswitch.

Tom Bill, head of UK residential research at estate agent Knight Frank, said: “Since November, 10 weeks of recovery in the UK housing market have been followed by 10 weeks of drift.

“Mixed signals around inflation, rising supply and a wave of people rolling off sub-2% fixed-rate mortgages agreed in early 2022 mean the direction of travel for the property market is currently sideways. Once a rate cut appears firmly on the horizon and more mortgage rates start with a three, we expect stronger demand to push UK prices 3% higher this year.

“And if we are right to think that Bank Rate will be cut further than most forecasters anticipate, mortgage rates will fall to below 4% by this time next year, giving house prices a fresh boost.”

The Bank of England’s (BoE) decided to leave UK interest rates on hold at their current 16-year high of 5.25% for a fifth consecutive time.

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Looking at the survey from a regional perspective, Northern Ireland remains the strongest performing nation in the UK, with house prices up by 4.3% on an annual basis, according to Halifax.

Properties in Northern Ireland now cost an average of £194,743, which is £7,972 more than a year ago.

In Wales annual property price growth slowed to 1.9% in March, from 3.9% in February, with the average home now costing £219,213.

Meanwhile house prices in Scotland rose 2.1% year-on-year to stand at £204,835.

In England, there is a clear north/south divide in when it comes to house prices.

The North West saw the strongest growth, up by 3.7% on an annual basis to £232,315.

Properties in Eastern England recorded the biggest decline of 0.9%, with homes selling for an average of £330,627, a drop of £2,878 over the last year.

London continues to have the highest average house price in the UK, at £539,917. Prices in the capital have increased by 0.4% over the last year.

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