Halifax said prices declined by 1% last month, with higher mortgage rates affecting affordability for potential buyers
House prices dropped in March for the first time in six months, shows the latest data from Halifax.
The lender said prices declined by 1% last month, with higher mortgage rates affecting affordability for potential buyers.
The average house price dropped by around £2,900 to £288,430.
However, the lender said that house prices were still ahead of where they were last year.
Prices were 0.3% higher in March from a year earlier, although that was down from the 1.6% annual rise seen in February.
Kim Kinnaird, director of Halifax Mortgages, said the monthly decline in prices between February and March was “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, she added.
Affordability constraints continue to be a challenge for prospective buyers, while existing homeowners on cheaper fixed-term deals are yet to feel the full impact of higher interest rates, she said.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said increasing mortgage rates had “finally taken a toll on the housing market”.
Through February we had the price momentum of buyers who’d already agreed cheaper mortgages in January. Now that is petering out, and prices have dropped, she said.
UK interest rates reached record lows during the Covid pandemic, but the BoE began hiking rates at the end of 2021 as it sought to keep control of inflation – the rate at which prices increase.
This had a knock-on effect on mortgage rates which also began to rise, making it more expensive to borrow money for purchasing a house.
Mortgage rates peaked last summer and began to drop as expectations grew that the BoE will start to trim interest rates this year.
This led to an increase in activity in the housing market and February saw the highest number of mortgage approvals since September 2022, per BoE data released earlier this week.
Nevertheless, doubts about whether the BoE will lower rates as quickly as some had expected has stalled cuts to mortgage rates, and some lenders have pushed them back up.
Kinnaird added: 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 rises this year.
