Key Highlights :
The UK housing market has experienced a number of changes in recent months. On one hand, the average UK house price increased by 0.8% month on month in March, suggesting that the market is still growing. On the other hand, the annual rate of house price growth has slowed to its weakest level in more than three years, according to Halifax.
This slowdown can be attributed to a number of factors, including the easing of mortgage rates. The sudden spike in borrowing costs that was seen in November and December has now been largely reversed, which has led to a more positive outlook for the housing market.
The labour market is also a key indicator for house prices, and it remains strong, with unemployment at a historical low of 3.7%. Pay growth also continues to look robust, which is a positive sign for the housing market.
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. However, variable rate mortgages have increased as they are directly tied to the Bank of England’s headline interest rate.
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. Predicting exactly where house prices go next is more difficult, as the challenge from here is whether the full drag on house-buying 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.
Halifax’s report is based on mortgage approval data, reflecting prices agreed between buyers and sellers prior to sales completing. Its data includes Halifax, and Bank of Scotland mortgage customers. According to the report, annual price rises are at their lowest in three and a half years (October 2019), having fallen markedly since June 2022’s peak of 12.5%.
Alice Haine, personal finance analyst at Bestinvest, commented on the situation, saying: “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.”
Sarah Coles, head of personal finance at Hargreaves Lansdown, also commented on the situation, saying: “Annual price rises are at their lowest in three and a half years (October 2019), having fallen markedly since June 2022’s peak of 12.5%.”
Tom Bill, head of UK residential research at estate agent Knight Frank, added: “Prices are broadly in a holding pattern but will be tested this spring as supply rises and higher mortgage rates cause a sharp intake of breath among a growing number of buyers and homeowners.”
Jeremy Leaf, a north estate agent, also offered his perspective, saying: “At the sharp end, sales are still being agreed but are taking longer, not least because there’s more choice of stock.”
Overall, the UK housing market is experiencing some ups and downs, with the annual rate of house price growth slowing down to its weakest level in more than three years, but the market still showing signs of growth. The easing of mortgage rates and the strength of the labour market are positive signs for the housing market, but predicting where house prices will go next remains a challenge.