House prices fell by 0.5% in March, following a 0.3% increase seen in February, the latest Halifax house price index shows.
The pace of annual growth has also eased, slowing to 0.8% from 1.2% the previous month, suggesting the market has lost some momentum as spring begins.
House prices continue to vary by region, with stronger growth in the North and more subdued conditions in the South.
Northern Ireland continues to lead UK annual house price growth, with average prices up 8.7% over the past year to £224,809. Scotland also recorded strong growth, rising 4.4% annually to an average price of £222,716.
Wales saw a more modest increase of 1.6% on annual basis, taking the typical home value to £230,909.
In England, stronger price growth remains concentrated in northern regions. The North East saw prices rise 5.0% over the year to £184,119, while the North West recorded annual growth of 3.1%, with the average home now costing £247,442.
By contrast, the southern markets continue to see prices ease. The South East led declines, with prices down 1.9% year-on-year to £383,573, while London saw average values fall by 1.2% to £536,751.
Amanda Bryden, head of mortgages at Halifax, said: “The recent slowdown in the housing market reflects the wide uncertainty regarding the conflict in the Middle East. Concerns about higher energy prices have pushed up inflation expectations, which in turn led to a rise in mortgage rates, reducing confidence that interest rates will be cut this year and dampening the initial momentum in the market seen at the start of the year.
“The effect on house prices will largely depend on how long lasting these pressures prove to be and the wider implications for the economy and unemployment. Mortgage rates are a key factor for buyers, particularly those getting on the ladder for the first time, who are already balancing the challenge of saving a deposit, with the cost of borrowing.
“As a result, many are likely to watch movements in mortgage rates closely, before making a decision on any home purchase.
“However, the recent increase in UK mortgage rates has been more modest than the sharp rises seen during the mini budget of 2022. Further, many households will already be on fixed deals, protecting them from the latest rate rises. Taking all this into account, house prices may prove resilient, even if uncertainty weighs on market activity in the near term.”
Karen Noye, mortgage expert at Quilter, commented: “March is the first full month in which the conflict in Iran fed through into UK mortgage pricing, making this data set an important early test of how higher borrowing costs are starting to affect the housing market.
“Higher energy prices have pushed up inflation expectations and swap rates, forcing lenders to reprice and withdraw products, and leading to a sudden deterioration in affordability.
“Changes in mortgage costs do not feed through to house prices immediately, so any meaningful shift in price momentum linked to the recent rise in borrowing costs is likely to emerge from this point onwards.
“Looking ahead, the path for house prices will depend largely on how the conflict evolves. If tensions ease and energy driven inflation pressures recede, mortgage rates could stabilise and drift lower again, supporting broadly flat prices. If the conflict drags on, persistently higher mortgage rates are more likely to translate into weaker activity and softer prices, particularly in more rate sensitive parts of the market.”
Jonathan Hopper, CEO of Garrington Property Finders, added: “After a tempestuous month on the financial markets, the first warning light on the property market dashboard has blinked on.
“Yet for now the light is amber rather than red. The monthly pace of price rises has slipped into negative territory and the annual rate of price inflation has cooled by a third. But we’ve seen similar monthly swings in the past amid far more benign circumstances.
“That’s not to say the impact of the Iran conflict isn’t reflected in Halifax’s March figures. But at this stage, this first month of data is a poor indicator of where the market will go next.
“The reason for this distance is that the financial markets are moving far faster than the property market. As the past 24 hours show, extreme volatility is an almost daily occurrence on the financial markets.
“Nevertheless the surge in the cost of fixed rate mortgages over the past month has cooled buyer demand, as has the general sense of uncertainty caused by the war.
“As the spring surge in listings adds to an already abundant number of homes for sale, many sellers are being forced to trim asking prices or accept lower offers from buyers who increasingly hold all the cards.
“Demand is holding up very well among buyers who are less mortgage-reliant - downsizers for example - and those lucky enough to have secured a mortgage offer in February or before.
“Price growth was modest, and in many areas it was a buyer’s market, even before the conflict began. With further price falls now on the cards, that trend is likely to continue as the conflict injects uncertainty into the market.
“History tells us that uncertainty does nothing good for the property market, and while this first set of data doesn’t fully capture the war’s impact, the coming months could get challenging for sellers.”
