Rising borrowing costs linked to the Iran conflict have knocked buyer confidence and stalled the spring recovery, with Halifax reporting a 0.5 per cent monthly decline in March.
The UK housing market has hit a stumbling block just as the traditionally busy spring season was expected to gather pace. Halifax, one of Britain’s biggest mortgage lenders, has reported that the average house price fell by 0.5 per cent in March, erasing the modest 0.3 per cent gain recorded in February and dragging the headline figure back below the symbolic £300,000 threshold to £299,677.
Annual price growth has also weakened, easing to just 0.8 per cent from 1.2 per cent the previous month, well below the consensus forecast of 1.5 per cent that many City economists had pencilled in. On a monthly basis, the market had been expected to edge forward by around 0.1 per cent, making the actual reading a clear disappointment for anyone hoping the spring upturn was gathering steam.
The figures stand in stark contrast to data published last week by Nationwide, which pointed to a 0.9 per cent monthly increase, though even Nationwide cautioned that geopolitical tensions were likely to feed through into activity before long. The disparity is largely methodological: Halifax’s index tends to capture shifts in market sentiment more quickly, meaning March’s reading may offer a more up-to-date snapshot of conditions on the ground.
The Iran effect on mortgage rates and buyer behaviour
The root cause of the slowdown is no mystery. Since the outbreak of the Iran war, inflation expectations have climbed, bond yields have risen and lenders have repriced their mortgage products accordingly. According to Rightmove, the average two-year fixed rate has jumped from 4.24 per cent at the start of March to 5.41 per cent, a shift that will add hundreds of pounds to monthly repayments for anyone remortgaging or purchasing now.
Ashley Webb, senior UK economist at Capital Economics, noted that the weaker March numbers likely reflect potential buyers opting to wait on the sidelines as borrowing costs climb. Housebuilders and estate agents have been reporting a similar picture for several weeks.
Amanda Bryden, head of mortgages at Halifax, described a market that has plainly lost momentum as it enters what should be its busiest quarter. She pointed to the broader uncertainty created by the Middle East conflict, with higher energy prices feeding through into inflation expectations and undermining hopes of near-term interest rate cuts from the Bank of England. That combination, she said, has dented the confidence that had been building at the start of the year.
What it means for property investors
For investors, the immediate picture is one of caution rather than alarm. Forecasters who had been expecting house price growth of two to three per cent this year have already trimmed their projections closer to one per cent, and further downgrades are possible if mortgage rates remain elevated.
However, there are reasons to avoid outright pessimism. Bryden highlighted that the rate increases seen so far remain more modest than those triggered by the mini-Budget crisis of late 2022, and millions of homeowners are still protected by existing fixed-rate deals. That should limit forced selling and prevent the kind of sharp correction some commentators have begun speculating about.
The key variable, as Bryden noted, is duration, specifically, how long the conflict-driven pressures on inflation and mortgage pricing persist. A swift resolution or a stabilisation in energy markets could allow rates to ease and activity to recover relatively quickly. A prolonged period of uncertainty, on the other hand, would likely keep buyers cautious and price growth subdued well into the second half of the year.
Webb expects prices to remain under pressure in the coming months as the full effect of higher mortgage rates works its way through the market. For buy-to-let investors and those looking to acquire residential assets, that may present opportunities, but only for those with the financial flexibility to act without relying on cheap leverage.
The message for now is clear: the spring bounce has been deferred, and the trajectory from here depends far more on events in the Middle East than on anything happening in Whitehall.
