The ongoing conflict in Iran has cast a shadow over the UK housing market, with house price growth halving in April as buyers grapple with heightened uncertainty and rising borrowing costs. Halifax, a subsidiary of Lloyds Banking Group and Britain's largest mortgage lender, reported that the average UK home price slipped by 0.1% month-on-month to £299,313 in April, following a 0.5% decline in March. This marks the second consecutive monthly drop.
The annual rate of house price growth slowed sharply to 0.4% from 0.8% in the previous month, according to Halifax data. The lender attributed the cooling to global developments, particularly the Iran war, which has driven up energy prices and fueled inflation expectations. This has prompted financial markets to reassess the trajectory for interest rates, pushing up borrowing costs for prospective homebuyers.
Mortgage Rates on the Rise
Higher mortgage rates are already weighing on affordability. Data from Moneyfacts shows that the average two-year fixed mortgage rate stood at 5.77% on Thursday, up from 4.83% at the start of March. Similarly, the average five-year fixed rate rose to 5.69% from 4.95% over the same period.
Amanda Bryden, head of mortgages at Halifax, commented: "After a strong start to the year, recent global developments have added a greater degree of uncertainty to the outlook. Higher energy prices have fed into inflation expectations, prompting markets to reassess the path for interest rates – a shift that has already pushed up borrowing costs for many buyers. This understandably leads to more caution among some households, with the cost of living once again front of mind and extra thought being given to planned property moves."
Market Disconnect Between Buyers and Sellers
Before the Middle East conflict intensified, the UK housing market had shown solid growth, with prices rising 0.8% month-on-month in January and 0.3% in February. That strong start led Halifax to forecast annual growth of 1.2% in February. However, the current climate has created a growing disconnect between buyers and sellers.
Chris Hodgkinson, managing director of House Buyer Bureau, noted: "The problem facing the market at the moment is that many sellers are still pricing based on expectation rather than current market reality, creating a growing disconnect between buyers and sellers. Whilst demand is still there, buyers are far more price sensitive in the current climate, and homes that aren't positioned correctly from day one are simply sitting on the market for longer, forcing sellers into larger reductions further down the line."
Contrasting Data from Nationwide
In contrast to Halifax's findings, Nationwide reported last week that house prices jumped in April at the fastest annual pace in 11 months, surprising estate agents and economists. The UK's biggest building society said its mortgage data showed prices unexpectedly rose by 3% year-on-year in April, up from 2.2% in March, with the average UK property valued at £278,880. Nationwide recorded four consecutive months of price increases, including a 0.4% rise in April after a 0.9% increase in March, defying expectations of a 0.3% monthly fall.
The differing methodologies between Halifax and Nationwide highlight the complexity of the housing market. While both lenders rely on mortgage data, their calculations and sample sizes vary, leading to different snapshots of price trends. The economic turbulence caused by the Iran conflict continues to inject uncertainty, making it difficult to predict the market's near-term direction.
