Uk home prices rebound, but rate hikes threaten recovery
UK house prices experienced their fastest monthly increase in nearly 18 months in March, rising 0.9% – a welcome shift after a period of stagnation. However, this upward trend faces a significant headwind: soaring mortgage rates fueled by geopolitical uncertainty.
Buyer affordability plummets amidst economic volatility
Nationwide, the UK's largest building society, reported the 0.9% monthly gain, the largest since December 2022. This contrasts with February's modest 0.3% rise and significantly beats economists’ predictions of a 0.6% increase. The average home price now stands at £277,186, with annual growth reaching 2.2% from 1% the previous month. But this optimism is fragile.
The conflict between the US and Israel has injected considerable instability into financial markets. Analysts now foresee the Bank of England's Monetary Policy Committee raising the base rate three times over the next year, potentially from the current 3.75%. This is a sharp reversal from earlier expectations of rate cuts.
Robert Gardner, chief economist at Nationwide, highlights the impact of this shift: “We’ve seen a sharp rise in longer-term interest rates, impacting fixed-rate mortgage costs. Coupled with waning consumer confidence and the looming prospect of higher energy bills, activity in the housing market is likely to cool.”
Mortgage rates have surged above 5% in recent weeks. A two-year fixed-rate mortgage now averages 5.77%, up from 4.83% at the start of March – the highest level since August 2022. The five-year fixed-rate has climbed to 5.7%, a level not seen since November 2023. Karen Noye, a mortgage expert at Quilter, notes that the easing borrowing costs that supported activity earlier in the year have been rapidly undone.
“Since the conflict began, mortgage rates have risen sharply, with lenders withdrawing products and repricing fixed-rate deals with little notice,” Noye explains. This deterioration in affordability presents a considerable challenge for prospective buyers and those looking to move.
The market is bracing for a period of adjustment. The rebound in house prices may prove to be short-lived, overshadowed by rising borrowing costs and a clouded economic outlook.