The UK housing market experienced a setback in March, with average property prices declining by 0.5%, according to the latest data from Halifax. The average home now costs £299,677, as heightened uncertainty stemming from the conflict between the US-Israel and Iran dampened buyer demand and pushed mortgage rates higher.
This drop reverses a modest 0.3% gain recorded in February, before the onset of hostilities. The conflict's immediate impact has been a sharp rise in global oil prices, fueling concerns that inflation could climb and delay anticipated cuts to interest rates this year.
"The recent slowdown in the housing market reflects the wide uncertainty regarding the conflict in the Middle East," said Amanda Bryden, head of mortgages at Halifax. "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."
Mortgage rates have jumped significantly in recent weeks. The average rate on a two-year fixed deal climbed from 4.83% at the start of March to 5.90% by month's end—the highest level since July 2024. This surge prompted lenders to withdraw hundreds of the cheapest deals from the market, marking the largest daily withdrawal since the turmoil following the 2022 mini-Budget.
While a recent conditional ceasefire between the US and Iran caused a brief 15% drop in Brent crude oil prices to $94 per barrel, analysts note that oil remains about 30% more expensive than before the conflict began. This has provided little immediate relief for UK mortgage rates.
Financial experts suggest the market's trajectory now hinges on the durability of the ceasefire and its broader economic implications.
"The longer the ceasefire holds and markets calm, the more the mortgage market will stabilise, and rates could even begin to edge lower," said Adam French of Moneyfacts. "But for now, it's more likely to slow or pause increases rather than trigger any sharp falls."
Estate agents report a mixed outlook. Nicky Stevenson of Fine and Country noted that while monthly price movements may be "choppy," the underlying market shows "modest stability."
The situation complicates the Bank of England's monetary policy. With inflation at 3% in February, the Bank had hinted at potential rate cuts this year. However, subsequent spikes in fuel prices—now at their highest since late 2022—threaten to keep inflation elevated, potentially forcing the Bank to maintain higher borrowing costs to curb price rises.
Rachel Winter of Killik & Co. indicated that while the ceasefire may ease some inflationary pressures, interest rates are unlikely to decrease in 2024. The interplay between geopolitical stability, energy costs, and monetary policy will continue to shape the UK housing market in the coming months.