UK House Prices Experience First Monthly Decline in Six Months

UK house prices saw a decline in March, marking the first monthly decrease in six months, as reported by Halifax, a leading mortgage lender.

The data revealed a 1% drop in prices last month, attributing the decline to higher mortgage rates impacting affordability for potential homebuyers. Despite the setback, the average house price remains relatively high, standing at approximately £288,430, down by around £2,900. However, Halifax emphasized that while prices dipped in March, they still surpassed figures from the previous year, showing a 0.3% increase annually, albeit lower than the 1.6% rise witnessed in February.

Kim Kinnaird, Director of Halifax Mortgages, noted that the monthly decline wasn't entirely unexpected, particularly in light of market adjustments following significant interest rate hikes since 2022. Kinnaird highlighted the resilience of house prices despite the mounting borrowing costs. She acknowledged that affordability challenges persist for prospective buyers, compounded by existing homeowners yet to fully feel the impact of higher interest rates, particularly those on cheaper fixed-term deals.

Halifax's findings align with those of rival lender Nationwide, which also reported a decrease in house prices for March. Sarah Coles, Head of Personal Finance at Hargreaves Lansdown, attributed the decline to rising mortgage rates finally taking a toll on the housing market. Coles explained that the momentum witnessed in February, driven by buyers securing cheaper mortgages in January, had waned, resulting in the price drop observed in March.

Throughout the Covid pandemic, UK interest rates hit record lows, but the Bank of England's decision to raise rates at the end of 2021 aimed to control inflation. This move had a ripple effect on mortgage rates, causing them to rise and making borrowing for home purchases more expensive. While mortgage rates reached their peak last summer, expectations of rate cuts by the Bank of England prompted a decline, fueling activity in the housing market.

However, doubts surrounding the timing of rate reductions have stalled decreases in mortgage rates, with some lenders even raising them again. Kinnaird emphasized the housing market's sensitivity to interest rate changes and highlighted modest improvements in affordability. Nevertheless, she cautioned that significant house price increases may be limited this year due to these factors.

Halifax's house price data, based on its mortgage lending, excludes cash buyers and buy-to-let deals, accounting for approximately a third of housing sales. Despite the recent decline, the housing market's trajectory remains contingent on various factors, including interest rate movements and affordability dynamics, shaping the landscape for prospective buyers and homeowners alike.