House prices fall as mortgage costs take toll

HOUSE prices have fallen for the first time in six months as higher mortgage rates continue to pile pressure on borrowers.

Average house prices fell by 1pc in March, following a rise of 0.3pc the previous month, according to Halifax, britain’s largest lender.

Financial markets have become less optimistic about the timing and scale of interest rate cuts by the bank of England as inflation remains ‘stickier’ than expected, according to the building society’s report.

This has kept borrowing costs high. The value of a typical home fell by £2,908 last month to £288,430 as homeowners hold out hope that mortgage rates will fall in the next few months.

House prices remain 0.3pc or £700 higher than a year ago and are up almost £50,000 on prepandemic levels.

Kim Kinnaird, director of Halifax Mortgages, said the housing market was ‘yet to fully adjust’ as higher borrowing costs continue to feed through to hit homeowners in the pocket, with sellers likely to be pricing their properties accordingly.

The average two-year fixed rate mortgage is 5.52pc, up from 2.88pc two years ago, according to financial rate analyst Moneyfactscompare.

The average five-year deal has also increased, rising from 3.03 per cent to 5.39 per cent over the same period. Kinnaird said: ‘affordability constraints continue to be a challenge for prospective buyers, while existing homeowners on cheaper fixedterm deals are yet to feel the full effect of higher interest rates.

‘The housing market remains sensitive to the scale and pace of interest rate changes, and with only a modest improvement in affordability on the horizon, this will likely limit the scope for significant house price increases this year.’

The bank of England has held interest rates at 5.25pc since august as inflation drops back.

Mortgage rates peaked last summer then began to fall amid hopes the bank of England would start to cut interest rates this year.

This bolstered the housing market and February saw the highest number of mortgage approvals since September 2022, according to bank of England figures.

However, markets have downplayed hopes of an early spring cut. and doubts over whether the bank will cut interest rates as quickly as economists had expected has deterred lenders from cutting mortgage rates.

Some banks and building societies have also taken the opportunity to nudge rates higher in recent weeks.

Forecaster Capital Economics expects mortgages to remain higher than in January and February and hover at just under 5pc over the coming months.

This will suppress demand and prevent further increases in house prices, it predicted.

It also expects that the bank Rate will be cut by more than widely forecast later this year.

Imogen Pattison, assistant economist at Capital Economics, said: ‘If we are right to think that bank Rate will be cut further than most forecasters anticipate, mortgage rates will fall to below 4pc by this time next year, giving house prices a fresh boost.’