Latest data from Halifax House Price Index This shows that the UK housing market is losing momentum. After rising 0.3% in February, home prices fell an estimated 0.5% in March, leaving annual growth at just 0.8%. Hopes for a strong rebound this year have been dampened by the ongoing conflict in the Middle East.
Mortgage rates are rising again due to global uncertainty, geopolitical risks and rising inflation. Higher UK bond yields and expectations that Bank of England Maintaining high interest rates means buyers will face increased costs for both variable and fixed rate mortgages. Despite the possibility of a ceasefire, the economic effects are already shaping the market.
With UK housing demand highly sensitive to borrowing costs, rising rates are rapidly eroding purchasing power. Along with persistent inflation, affordability pressures are emerging as a major factor impacting house prices, threatening the gradual recovery seen at the beginning of the year.
Industry Considerations:
Ian McKenzie, CEO of The Guild of Property Professionals: “The modest decline in home prices reflects the cautious mood that is beginning to prevail among some buyers. With borrowing costs rising and inflation consistently above target, many households are reevaluating their budgets and delaying decisions.
“At the same time, the supply of homes for sale has reached an 11-year high, intensifying competition among sellers. In this environment, pricing strategy is absolutely critical, as a higher price is more likely to result in a longer stay on the market or a price cut.
“That said, the picture is far from collapse. Agreed sales have remained relatively stable and transaction levels were improving at the start of the year, indicating there is still a group of committed buyers. Although forecasts still suggest modest growth in the medium term, the risk of a weaker-than-expected performance has increased due to increased economic uncertainty.”
Nathan Emerson, CEO of PropertyMark: “We are at an important crossroads where we must clearly acknowledge the challenges of the future. We started the year with positivity in terms of seeing an increase in the average number of viewings per available property, as well as general consumer positivity regarding affordability.
“However, a lot has changed in a very short time, with many sub-4% mortgage deals withdrawn over the past few weeks as the wider economy adjusts to potential uncertainties.
“Inflation is expected to rise in the coming months and is likely to have an immediate impact on consumer affordability. The rate of inflation will also have a sharp impact on the Bank of England in relation to base rate decisions in the coming months. In addition, we will also see OFGEM make its next decision in relation to the energy price cap at the end of next month, which again should be considered highly in relation to household affordability during the year.”
Tom Bill, head of UK residential research at Knight Frank: “What goes up must come down, but the decline for mortgage rates will be more gradual than the sharp rise resulting from the Middle East conflict, even if a two-week ceasefire agreement holds. Sentiment in the housing market will improve if the war stops, but its tight fiscal space and apparent inability to cut spending due to its long-term inflationary effects and weak demand for UK government debt means mortgage rates will not return to where they were in February. “Sal demand and house prices will remain under control.”
Jeremy Leaf, North London estate agent: “Activity grew encouragingly early this year, but was halted when it became clear that the fallout from the war in the Middle East would last longer than previously feared.
“Many buyers have been supported by mortgage offers they received before the start of hostilities, so they have been able to take advantage of sellers’ low expectations. This survey from the country’s largest lender confirms what we have seen on the ground – that some of the less-committed ones have held off, while the more serious ones are negotiating harder, so we are seeing only fluctuations in prices, not more serious declines.
“However, even if the conflict ends soon, inflation driven by rising oil prices and mortgage rates is likely to persist for at least some time.”
Jason Tabb, President of OnTheMarket: “The momentum built by multiple interest rate cuts over the last one-and-a-half year, coupled with post-Budget clarity, remains in evidence on the ground, with need-driven buyers and sellers focused on transacting on the go.
With rate cuts on hold at least for the short term, and the rate threat becoming a concern as the conflict in the Middle East continues longer term, those with competitive mortgage offers are keen to move in before rates rise.
While much depends on the length of the conflict and its wider impact on the economy, at the moment the resilience of the housing market in the face of political and economic uncertainty is clear as life events will always prompt people to move, whether it’s upsizing, downsizing or relocating.