House prices increase after mortgage rates ease

The latest house price rises suggest the property market is relatively stable, according to Halifax.

The price of the average UK home increased by 0.8 percentage points between February and March, according to Halifax, the UK’s largest mortgage lender. It means the price of the average home in the UK now stands at £287,880.

“The principal factor behind this improved picture has been an easing of mortgage rates,” said Kim Kinnaird, Director at Halifax.

She also described the UK housing market as stable at the beginning of the year as more buyers re-entered the market after muted activity towards the end of last year.

“The sudden spike in borrowing costs that we saw in November and December has now been largely reversed,” she explained.

According to Moneyfacts data this is largely correct.

The average two year fixed rate peaked in November at 6.47% and has now reduced to 5.35%. Meanwhile, the average five year peaked in the same month at 6.32% and has since fallen to 5.05%. 

However, the average Standard Variable Rate, which is generally more sensitive to base rate changes than a fixed rate deal, has continued to rise. It stood at 5.86% in November and now stands at 7.30%.

At the same time the base rate has increased by two percentage points.

“Predicting exactly where house prices go next is more difficult,” said Kinnaird.

She did mention that the expected drop in inflation over the coming months should provide households with more disposable income.

Whether this will increase demand for housing is yet to be determined. 

“While the path for interest rates is uncertain, mortgage costs are unlikely to get significantly cheaper in the short-term,” said Kinnaird.

As a result, she expects the performance of the housing market to slow down this year as it reflects the “new norms of higher borrowing costs and lower demand”.