Average UK house prices experienced a 0.5% drop in March, according to Halifax, as mortgage rates surged due to the ongoing repercussions of the Iran war, consequently stifling buyer demand. The nation’s largest mortgage lender reported that the average property price now stands at £299,677, with annual growth also showing a slowdown.
This decline reverses a 0.3% increase observed in February, prior to the conflict’s onset, which led to higher energy costs. These rising costs fueled fears of escalating inflation and a potential absence of interest rate cuts this year. Mortgage rates have indeed jumped, with hundreds of the most competitive deals vanishing over recent weeks. Last month witnessed the most significant daily withdrawal of deals since the tumultuous mini-Budget of 2022 under then-Prime Minister Liz Truss. However, Halifax noted that the recent increase in mortgage rates has not been as severe as that seen four years ago.
Amanda Bryden, head of mortgages at Halifax, commented, “The recent slowdown in the housing market reflects the broad uncertainty surrounding the Middle East conflict. Concerns about higher energy prices have elevated inflation expectations, which in turn pushed up mortgage rates, eroding confidence in this year’s interest rate cuts and dampening the market’s initial momentum seen at the start of the year.”
Oil prices have soared since the US-Israel war with Iran began weeks ago. Brent crude prices saw a 15% fall to $94 per barrel on Wednesday, following plans for a conditional ceasefire between Washington and Tehran. Despite this, oil remains 30% more expensive than before the conflict started on February 28, and the ceasefire did not immediately translate into improved UK mortgage rates. Interest rates on new, fixed-rate mortgages were projected to decrease before the conflict but have instead risen sharply. The average rate on a two-year deal, which was 4.83% at the beginning of March, is now 5.90% – its highest since July 2024, according to financial information service Moneyfacts.
Regarding the duration of weaker demand, Bryden stated it would “largely depend on how long-lasting these pressures prove to be and the wider implications for the economy and unemployment.” Mortgage lenders are exercising caution given the volatile situation. Adam French, head of consumer finance at Moneyfacts, suggested, “The longer the ceasefire holds and markets calm, the more the mortgage market will stabilise, and rates could even begin to edge lower. But for now, it’s more likely to slow or pause increases rather than trigger any sharp falls.” Nicky Stevenson, managing director of Fine and Country estate agents, anticipates “choppy” house prices month-to-month but maintains that “the bigger picture is still one of modest stability.”
Inflation Outlook:
The UK’s inflation rate, measuring the pace of price increases, stood at 3% in the year to February, with cheaper motor fuel offsetting higher clothing and footwear costs. The Bank of England, targeting 2% inflation, had hinted at interest rate cuts this year, which would benefit borrowers as Bank of England rates influence mortgage rates. However, petrol and diesel prices have significantly jumped since March, reaching their highest levels since late 2022, as reported by the RAC motoring organisation. When inflation is high, the Bank can raise interest rates to curb it. Higher borrowing costs reduce disposable income for individuals and businesses, encouraging saving and thus reducing demand for goods and slowing price rises. This is a delicate balancing act, as increasing borrowing costs risks harming the economy. Rachel Winter, a partner at wealth management company Killik & Co, told the BBC’s Today programme that the inflation outlook was “possibly not as high” as previously thought due to increased optimism about a deal, but she still believes interest rates are unlikely to decrease this year.
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