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House prices fell in March as the uncertainty caused by the Iran war stifled the property market and spiked fears of interest rate rises.
Average house prices fell 0.5 per cent last month, reversing the modest 0.3 per cent February increase, according to Halifax’s house price index.
This is the latest signal that the Iran war is shaking confidence in the UK property market, as Brits freeze home moves amid fears mortgage rates could balloon.
The average property price fell to £299,677 in March, as annual price growth slowed to 0.8 per cent, down from 2.1 per cent in February.
Property prices continue to slump in London, down 1.2 per cent in the year to March, to an average of £536,751.
Brits fear inflation and pause house moves
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.”
Recent data showed signs the UK’s property market was beginning to recover from a subdued period surrounding the Budget, before the Iran war broke out.
Mortgage approvals recovered in February from a two-year low in the month prior, and other house price indexes suggest the market was slowly regaining strength in February and March.
But experts are divided over whether the Iran war – which housebuilders say has knocked buyer confidence – will pose a lasting threat to the property market.
The Iran war prompted lenders to pull mortgages off the market at rapid speed, with the number of deals on offer having shrunk by a fifth since the start of the conflict.
Market recovery will be gradual
Last week, experts at Nationwide said the prospect of multiple Bank of England interest rate hikes this year – despite several cuts having been expected just months ago – could cause mortgage interest rates to rise, harming affordability.
Bryden said the hikes to mortgage rates seen so far remain below the increases which came in response to Liz Truss’ infamous 2022 mini-Budget.
Some housebuilding firms have called on the government to make first-time home owning more affordable, which would in turn stimulate the market by making building homes more viable.
Leading businesses in the property industry – including estate agency Foxtons and housebuilder Berkeley – have said the government’s regulation and tax policies are making their lives more difficult.
Property experts Knight Frank said the two-week ceasefire agreed between the US and Iran on Tuesday night could boost the property market but it is unlikely to be a quick fix.
Tom Bill, head of UK residential research, said: “What goes up must come down, but for mortgage rates the drop will be more gradual than the sharp increase triggered by the Middle East conflict, even if the two-week ceasefire deal holds.
“Sentiment in the housing market will improve if the war stops, but its longer-term inflationary impact and weaker demand for UK government debt due its tight financial headroom and apparent inability to cut spending means mortgage rates won’t snap back to where they were in February.”