Halifax has warned that the US-Israel war against Iran could slow the decline in mortgage rates this year, as it said house price growth slowed dramatically in February.
Halifax, which is part of Lloyds – Britain’s biggest mortgage lender – said conflict in the Middle East was likely to hit global economies, stoke inflation and slow the likely rate of interest rate cuts that influence borrowing costs for homebuyers.
The lender said the value of a typical UK home rose 0.3% in February to £301,151.
However, this is a significant drop in the growth rate compared to the 0.8% recorded in January, which pushed average house prices past the £300,000 mark for the first time.
“Looking ahead, geopolitical uncertainties appear to be weighing on the outlook for inflation and the broader economy,” said Amanda Bryden, director of mortgages at Halifax. “In that context, markets now anticipate a more gradual path to interest rate reductions. If it comes to fruition, the speed at which borrowing costs are reduced may be attenuated.”
Analysts have significantly reduced the chances that the Bank of England’s monetary policy committee will vote in favor of another move lower in the 3.75% base rate when it meets later this month.
“The conflict in the Middle East has raised energy prices and reduced expectations of central bank rate cuts,” said Mark Harris, chief executive of mortgage broker SPF Private Clients. “Swap rates, which support the price of fixed-rate mortgages, have risen slightly amid fears that rising prices will fuel inflation.
“Several lenders have already raised their mortgage rates to reflect higher swap rates. Expectations of a near-term base rate cut, perhaps as soon as this month, have been reduced substantially.”
On Thursday, HSBC, Nationwide and Coventry building societies became the first major UK lenders to announce a rise in rates on their fixed mortgage deals as a result of the Middle East crisis, and brokers predict others are likely to follow in their footsteps.
Jeremy Leaf, a north London estate agent and former chairman of the Royal Institution of Chartered Surveyors, said: “There is no doubt that some buyers and sellers have been pressing the pause button since the war in the Middle East began. We expect that button to be pressed a little further if uncertainties over interest rates and inflation appear likely to persist for much longer than a few weeks.
“Until the end of February, activity had been steadily recovering, as seen in these and other property market figures, although inevitably some of that improvement may now slowly begin to weaken.”
Halifax said the annual rate of house price growth rose to 1.3% in February, the highest rate in four months.
However, he said that while the housing market had gained some momentum after a slowdown late last year, first-time buyers were still finding it difficult to get on the housing ladder.
“There is no doubt that affordability remains limited, supply is limited, and regional disparities persist,” Bryden said. “For those without family support, the path to homeownership is particularly challenging.”
Northern Ireland continues to show the highest rate of house price growth in the UK, up 6.3% on last year, with the average home costing £218,608.
Scotland recorded annual growth of 4.7%, with the typical property valued at £222,286. The average property price in Wales has increased by 2.4% annually to £231,637.
By contrast, property prices in the south of the UK have fallen. Across the South East, the average house price has fallen by 2.2% annually to £383,834. While in London there has been an annual fall of 1% to £538,200.
