A leading business analyst is firmly blaming interest rates for the see-saw in house prices seen in recent indices.
The latest, from the Halifax, says average house prices fell in March, down 1% in a month after five consecutive monthly rises. The average house price is now £288,430, - down £2,900 in a month. Meanwhile annual prices are up, but by only a token 0.3%.
Sarah Coles, head of personal finance at Hargreaves Lansdown, says much of the blame for the latest house price dip has been the edging up of interest rates from lenders in recent months - despite no change in base rate ny the Bank of England.
“Mortgage rate rises have finally taken a toll on the housing market. Rising rates haven’t been an overnight sensation, but gradual upwards nudges through February and March have taken the average two-year fix from 5.56% at the end of January to 5.81% by the end of March.
“It has started to sap the life out of a market that was starting to flourish.
“Rates have been rising ever since the banks decided they’d got ahead of themselves in assuming the Bank of England was going to cut rates in the spring. Now they’re convinced that rates will stay put until June or August, they’re boosting mortgage prices to reflect the new assumptions. Through February we had the price momentum of buyers who’d already agreed cheaper mortgages in January. Now that’s petering out, and prices have fallen.”
She says the rates are not alone in taking responsibility, but they have triggered a broader and more pessimistic sentiment amongst some.
“Retailers have had their worst run since Covid, with sales dropping again in March. If we’re not prepared to buy a new pair of shoes in case tougher times are around the corner, we’re unlikely to consider this to be a good time to splash hundreds of thousands of pounds on a new home” she suggests.
But she says for those with patience, there may be better times nearby.
“There still remains a decent chance that this isn’t the beginning of a long run of price cuts. Prices are still higher than this time last year, and if we get the rate cuts we’re expecting, mortgages could get cheaper in the coming months, rejuvenating the market again. If you’re sitting on your hands, waiting for the market to turn, don’t forget your deposit.
"While rising rates have made the mortgage market much tougher, it has also made savings so much more rewarding. At the moment, you can get easy access savings accounts paying 5% or more, so if you’re sitting on a dismal deal from a high street bank, it’s worth shopping around to get a better rate while you wait. It’s not too late to take advantage of your cash ISA allowance for this year too.
“Online banks and savings platforms are streets ahead of the high street giants, so while you wait for the sun to shine in the property market, you can warm up your savings rate today.”
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