UK House Prices Drop for the First Time in Six Months Due to Higher Mortgage Costs

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UK house prices drop for the first time in six months amid higher mortgage costs. Stay informed on the latest trends in the housing market.

UK house prices declined in March for the first time in six months due to pricier mortgage deals and ongoing uncertainty surrounding potential interest rate cuts by the Bank of England, impacting the property market.

According to Halifax’s house price index, house prices dropped by 1%, equivalent to £2,908, compared to February. The average property now stands at £288,430, representing a 0.3% increase from the same month last year.

Similar trends were observed in Nationwide’s report, which indicated a 0.2% decrease in the average home price from February to March, adjusted for seasonal variations, to £261,142.

The rise in mortgage costs offered by lenders since the beginning of the year has contributed to this trend. Financial markets have tempered their optimism regarding future interest rate cuts, as core inflation persists at levels higher than anticipated.

Mortgage rates for borrowers fell as low as 5.55% for an average two-year fixed-rate deal in January as lenders vied for new business.

However, deals began to edge up, and the average two-year fixed rate rose from 5.59% to 5.76% between the start of February and the beginning of March and is now 5.8%, according to Moneyfacts. During the same period, the average cost of a five-year fixed-rate mortgage rose from 5.23% in February and now stands at 5.39%.

Kim Kinnaird, the director of Halifax Mortgages, said the market had shown “surprising resilience” despite higher borrowing costs.

“That a monthly fall should occur following five consecutive months of growth is not entirely unexpected, particularly in view of the reset the market has been going through since interest rates began to rise sharply in 2022,” she said.

“Affordability constraints continue to be a challenge for prospective buyers, while existing homeowners on cheaper fixed-term deals are yet to feel the full effect of higher interest rates. This means the housing market is still to fully adjust, with sellers likely to be pricing their properties accordingly.”

She said that prices had not changed much over the past couple of years and were still almost £50,000 above pre-pandemic levels but added that, with only a modest improvement in affordability on the horizon, “this will likely limit the scope for significant house price increases this year”.

Estate agents said the market remained resilient. Nicky Stevenson, the managing director at the national estate agent group Fine & Country, said: “An increasingly busy property market helped to prop up prices on an annual basis at the beginning of spring, but the monthly fall shows there is still some turbulence.

“Buyers are in a strong position and vendors are more open to negotiation, which is bringing prices down in some areas.”

Guy Gittins, the chief executive of Foxtons, said: “House prices have continued to creep up since the start of the year and this improvement in market health has been driven by the returning appetite of UK homebuyers.”

Source: The Guardian


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