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According to lender Nationwide, UK house prices unexpectedly fell for the second month in a row in April, reflecting the recent rise in mortgage rates.
House prices fell 0.4 percent between March and April after falling 0.2 percent in March, missing the 0.2 percent expansion forecast by economists. This was the largest monthly decline since August 2023, when mortgage rates peaked.
“The slowdown likely reflects ongoing pressures on affordability as longer-term interest rates have risen in recent months, reversing the sharp decline seen at the turn of the year,” said Nationwide chief economist Robert Gardner.
Swap rates, on which mortgage prices are based, have risen in recent months in response to markets reassessing when the Bank of England is likely to begin cutting interest rates soon, from a 16-year horizon -High of 5.25 percent. That reverses the decline in mortgage rates since their peak last summer.
Ranald Mitchell, director at broker Charwin Private Clients, said: “The exuberance at the start of the year has started to fade as mortgage rates have risen slightly.”
“Supply has improved, but the dwindling confidence in the market will only be addressed by a cut in the key interest rate,” he added.
Imogen Pattison, an economist at Capital Economics, said she expected mortgage rates to remain around their April levels, “keeping demand subdued” and preventing “renewed increases in house prices in the near term.”
However, it predicts that the BoE’s key interest rate will fall more this year than in most other countries. “The fall in mortgage rates going forward will mean house prices are likely to rise again,” she added.
Data released by the BoE on Tuesday showed the average two-year listed mortgage with a 60 percent loan-to-value ratio rose to 4.81 percent in March from 4.62 percent in February, but well below its recent peak of 6.22 percent in the year stayed July 2023.
That helped mortgage approvals recover to an 18-month high in March, BoE data showed. However, national data suggests this is having an impact on property prices.
The lender said house prices rose 0.6 percent year-on-year in April, compared with 1.6 percent in March and the lowest growth rate since January, when they were still falling. House prices fell year-on-year for most of 2023, driven by rising borrowing costs.
According to Nationwide, the average house price was £262,000 in April, down from a peak of £274,000 in August 2022. That was still around £50,000 above pre-pandemic February 2020 levels, reflecting rapid price growth at a time of low interest rates at record lows.
The real estate market is currently experiencing a “subdued phase,” said Karen Noye, mortgage expert at asset manager Quilter. However, the prospect of a rate cut and lower mortgage rates could make purchasing a property “more attractive to potential buyers who have been stuck in wait-and-see mode,” she added.