"With only a modest improvement in affordability on the horizon, this will likely limit the scope for significant house price increases this year."
- Kim Kinnaird, director of Halifax Mortgages
Annual house price growth slowed to 0.3% in March, down from 1.6% in February, according to the latest Halifax house price index.
Compared to last month, the price of a UK property fell by 1.0% or £2,908 in cash terms, with the average property now costing £288,430.
Despite the monthly fall following five consecutive months of growth, prices remain 2% higher on a quarterly basis.
Northern Ireland remains the strongest performing nation or region in the UK – with house prices up by 4.3% on an annual basis.
In Wales annual property price growth slowed to 1.9% in March, from 3.9% in February, meanwhile Scottish house prices rose 2.1% year-on-year.
A North/South divide continues in England, where the North West saw the strongest growth, up by 3.7% on an annual basis.
Properties in Eastern England recorded the biggest decline of 0.9%.
London continues to have the highest average house price in the UK, at £539,917, with prices in the capital increasing by 0.4% over the last year.
Kim Kinnaird, director of Halifax Mortgages, said: “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. Despite this house prices have shown surprising resilience in the face of significantly higher borrowing costs.
“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.
“Financial markets have also become less optimistic about the degree and timing of Base Rate cuts, as core inflation proves stickier than generally expected. This has stalled the decline in mortgage rates that had helped to drive market activity around the turn of the year.
“The broader picture is that house prices are up year-on-year, reflecting the opposing forces of an easing cost of living squeeze – now that pay growth is outpacing general inflation – and relatively high interest rates. Taking a slightly longer-term view, prices haven’t changed much over the past couple of years, moving in a narrow range since the spring of 2022, and are still almost £50,000 above pre-pandemic levels.
“Looking ahead, that trend is likely to continue. Underlying demand is positive, as greater numbers of people buy homes, demonstrated by recent rises in mortgage approvals across the industry and underpinned by a strong labour market. And with rental costs rising at record rates, home ownership continues to be an attractive option for those who can make the sums work.
“However 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.”
Karen Noye, mortgage expert at Quilter, commented: "The UK housing market is currently navigating through a phase of cautious recovery, a period characterised by moderated growth and as shown this morning the occasional drop in prices. The early surge in price increases seen at the start of the year is now showing signs that it was not as robust as once hoped, indicative of a market adjusting to significant economic pressures. However, a spring surge as a result of a revived buyer confidence may help house prices to increase at pace again.
"The dynamics of the mortgage market have played a pivotal role in shaping the current state of the property market. Initial cuts in mortgage rates sparked a renewed interest among potential buyers and movers, who had previously adopted a wait-and-see approach due to the financial uncertainties of 2023. However, the subsequent slowdown in rate reductions by lenders has served to keep property price rises in check.
"Looking ahead, the anticipation surrounding the Bank of England's monetary policy decisions will have its own like positive impact on the market. With expectations leaning towards a reduction in interest rates in the not-too-distant future, there's a sense of optimism about the market's direction. However, this should be tempered by the fact that the market is incredibly sensitive to broader economic indicators and one hiccup can cause a significant downward reaction.
"The interplay between mortgage rates, economic policies, and buyer sentiment is shaping a landscape where stability is the desire right now and if we can get some semblance of that house prices are likely to start to increase again in line with demand."
Jonathan Hopper, CEO of Garrington Property Finders, added: “Rather than accelerating away into another boom, changing market conditions have applied a slight dab on the brakes to house prices.
“Two things are behind March’s 1% dip in average prices – a jump in the number of homes for sale and the plateauing cost of borrowing.
“In some areas the number of homes coming onto the market is four times higher than the number of new buyers registering with estate agents – and this surge in supply is holding back prices.
“Gone too is the flurry of cheaper mortgage deals announced in the early weeks of the year that kick-started the market and sent property prices notching up.
“Instead mortgage rates are now holding broadly steady, and we’re unlikely to see lenders cutting rates significantly again until after the Bank of England confirms it is ready to unwind its tight monetary policy.
“As a result, all buyers remain highly price-sensitive and affordability is still a major hurdle for many would-be first-time-buyers. For them, the sums simply don’t add up yet - even though homes are cheaper in many parts of the country than they were a couple of years ago, borrowing the money needed to buy them costs much more.
“That’s why we’re seeing prices rise fastest in regions where affordability is better. Average prices jumped by 3.7% in the North West, but dropped by 0.9% in Eastern England in the 12 months to March.
“At a national level, the news is good. The number of mortgages approved in February climbed to a 17-month high, as buyers who sat out 2023 return to the market, and as more stock comes onto the market things are becoming much more free-flowing.
“Regional differences in prices are throwing up some strong buying opportunities, but across the UK as a whole we’re likely to see price growth meander for the next few months as we wait for mortgage rates to start falling again.”
