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UK house prices decline for the first time in six months

Halifax published its latest House Price Index on 5th April. It revealed that UK house prices fell 1% month-on-month in March 2024. That’s compared with the 0.3% month-on-month rise posted in February. The average UK house price now stands at £288,430, down £2,908 from the previous month.

The figures show comparable house price trends to those recently published by Nationwide. The building society said average UK house prices had fallen 0.2% month-on-month.

Stubborn mortgage rates

In the opening quarter of 2024, UK house prices had risen. Easing mortgage rates and the prospect of more interest rate cuts by the Bank of England supported this. But recent inflation and wage data has remained strong. This has led to the financial markets growing skeptical over the pace of rate cuts. All of this suggests mortgage rates could remain higher for longer.

If mortgage rates stay higher than anticipated, this could weigh on house prices in Q2 and Q3 2024. Between early March and early April 2024, the average two-year fixed-rate mortgage ticked up from 5.76% to 5.80%. Average five-year fixed-rate mortgages were also up from 5.23% to 5.39%. The UK property market has demonstrated “surprising resilience” according to Kim Kinnaird, director of Halifax Mortgages.

Yet average house prices sit around £50,000 higher than their pre-pandemic levels. Average mortgage rates are currently 2%-3% greater today than pre-pandemic rates. That’s why Kinnaird believes affordability challenges could yet linger.

The UK property market has by no means ground to a halt though. In February, house sales were up 9% month-on-month to 82,940 transactions. This suggests there’s still appetite from buyers, even at higher mortgage rates. Besides, time is of the essence for many homeowners involved in a moving chain. The rigmarole of house viewings and the legal process can be a drag on exchange and completion dates. That’s why some “sell house fast” operators exist online, capable of selling homes within seven days. These firms may offer less than the going market rate to close the deal fast. But, after factoring in legal and selling fees, the difference can be negligible.

IMF sounds alarm to the Bank of England

The International Monetary Fund (IMF) also waded into the debate surrounding the UK’s restrictive interest rate policy. It discussed the implications of declining property values, defaults, and reduced consumption.

The IMF believes the Bank of England should be mindful of the consequences of holding interest rates too high for too long. The IMF said the full impact of the rate hikes has escaped most mortgaged homeowners so far. But, if rates don’t fall this year, the Washington-based organisation fears a rise in defaults and property values. It also anticipates a drop-off in disposable income. All of which would have devastating consequences for the wider UK economy.

KPMG and REC published its new UK Report on Jobs on 8th April. It revealed a fifth successive monthly fall in demand for staff. Starting salaries increased more slowly than at any period in the last three years too. Even temporary wage inflation fell to a four-month low. This should give the Bank of England greater confidence that a rate cut is inching closer. If wage demands fall and the wider jobs outlook looks less certain, this will be good news for the markets.