A delayed timeline for interest rate cuts has pushed up mortgage costs, holding back buyer demand.
The average price of a home in the UK fell by 1% from February to March, said Britain’s biggest mortgage lender, Halifax, on Friday.
Last month’s drop, the first recorded since September, comes after a 0.3% rise seen in the month to February.
March’s figure was up 0.3% year-on-year, much lower than the 1.45% annual rise expected by economists polled by Reuters.
A typical UK home now costs £288,430 (€336,298), around £2,900 (€3,381) less than last month.
“The housing market remains weak on the back of a prolonged period of elevated interest rates as the market waits patiently for the Bank of England to start loosening monetary policy,” said Victoria Scholar, Head of Investment at interactive investor.
“Expensive mortgage rates have disincentivised property transactions, pushing rental costs through the roof instead.”
During the final months of last year, after the BoE decided to hold the base interest rate at 5.25% in September, house prices began to climb in the UK.
In January, the prospect of a rate cut then prompted many lenders to offer cheaper mortgage deals, although this confidence appears to have been short-lived.
Markets, which had originally expected the BoE to move in spring, are now predicting that rate cuts will arrive in June.
The average two-year fixed mortgage rate has consequently climbed to 5.81%, up from 5.55% in late January, according to Moneyfacts.
Halifax’s data chimes with trends outlined by competitor lender Nationwide earlier this week.
On Tuesday, Nationwide claimed that UK house prices fell by 0.2% between February and March.
Yet, whilst lenders have reached a broad consensus regarding the market’s downturn, there are some grounds for optimism.
“It’s hard not to ignore wage growth which is benefitting people’s finances and some of the housebuilders have suggested that consumer confidence is improving,” said Russ Mould, investment director at AJ Bell.
Although the housing market is likely to remain subdued until a rate cut arrives, prices have shown surprising resilience in light of a challenging economic context.
Some experts have also suggested that the monthly decline is a normal part of the market’s readjustment, given last year’s sharp rebound in prices as the cost of living crisis began to ease.
Looking at regional trends, Northern Ireland came out as the strongest performing area in Halifax’s report, recording a +4.3% year-on-year jump in house prices.
Halifax equally noted a stark divide between the cost of buying property in the north and south of England, with the former being more affordable.
Cheaper average costs often allow for greater house price growth, as fewer buyers are priced out of the market.
In England, the North West saw the strongest expansion, with prices up by +3.7% on an annual basis.
