Mortgage rate drop boosts housing market

Average price of a UK home increased by 0.8% in March, says Halifax

The average UK house price increased by 0.8% month on month in March, with the recent easing of mortgage rates helping to support the property market, according to an index.

However, the annual rate of house price growth has slowed to its weakest level in more than three years, according to Halifax.

The annual rate of house price growth eased to 1.6% in March.

Kim Kinnaird, director, Halifax Mortgages, said: “The typical house price is now £287,880, about 2% below the peak reached last August.

“On an annual basis, house prices were 1.6% higher than a year ago, slowing from 2.1% in February.

“This is the weakest rate of annual growth in nearly three and a half years (October 2019), having fallen markedly since June 2022’s peak of 12.5%.

“However, overall these latest figures continue to suggest relative stability in the housing market at the start of 2023 and align with many other recent industry surveys and data.”

Ms Kinnaird added: “The principal factor behind this improved picture has been an easing of mortgage rates.

“The sudden spike in borrowing costs that we saw in November and December has now been largely reversed.

“It’s also important to recognise that the labour market, a key indicator for house prices, remains strong, with unemployment at a historical low of 3.7%, and pay growth continues to look robust.

“Predicting exactly where house prices go next is more difficult. While the increased cost of living continues to put significant pressure on personal finances, the likely drop in energy prices, and inflation more generally, in the coming months should offer a little more headroom in household budgets.”

Halifax’s latest findings contrast with a separate house price index released by Nationwide Building Society last week.

According to Nationwide’s calculations, house prices fell by 0.8% month on month in March, marking the seventh month of price falls in a row.

Halifax’s report is based on mortgage approval data, reflecting prices agreed between buyers and sellers prior to sales completing. Its data includes Halifax, Lloyds Bank and Bank of Scotland mortgage customers.

Martin Beck, chief economic adviser to the EY ITEM Club, said: “The divergence between the two measures complicates a reading of the housing market.

“Taking the Halifax measure in isolation, there are reasons why prices may be holding up better than expected. A rise in mortgage approvals in February and better survey data on transactions of late suggests that weakness in housing market activity may have bottomed out.”

He added: “On the other hand, the resilience in prices shown in today’ s data may prove fleeting and the EY ITEM Club still expects property prices to drift down this year and into 2024. House prices remain very high on most measures of affordability.”

Alice Haine, personal finance analyst at Bestinvest, said: “While variable rate mortgages have increased as they are directly tied to the Bank of England’s headline interest rate, fixed mortgage rates may continue to edge down thanks to a brightening outlook for swap rates – the rate banks borrow money at – which are based on future bank rate expectations, and lenders competing more aggressively for business.

“The challenge from here is whether the full drag on housebuying activity from the cycle of rate rises is yet to be fully felt and whether the recent concerns for the global banking system cause banks to tighten their lending criteria.”