Slowdown in UK house price growth adds to gloomy outlook for sector

(Alliance News) - UK house prices saw their weakest annual growth since late 2019 according to Halifax data on Thursday, providing further evidence of the overall softening of Britain's housing market.

According to the mortgage lender, average house prices edged up 0.8% in March on a monthly basis. Growth slowed from a 1.2% climb in February.

Annually, growth in house prices slowed to 1.6% in March, from the 2.1% climb seen in each of the previous three months. It was the weakest rate of growth since October 2019, Halifax noted.

There were some positive signs in the data. To Capital Economics, the reading "suggests that pricing is proving remarkably resilient to higher mortgage rates".

"The report noted that mortgage rates have continued to trend downwards, housing transactions have picked up slightly, and the employment market remains robust. We still see challenges ahead as affordability remains under pressure," noted Derren Nathan, Hargreaves Lansdown head of equity research.

According to the Bank of England in late March, net mortgage approvals increased for the first time since August 2022, reaching 43,500 in February, compared to 39,600 the month before. However, this was still weak compared to the 71,000 approvals a year before.

In February, the effective interest rate on newly drawn mortgages, meaning the actual interest rate paid, increased to 4.24% from 3.88%. The bank's own benchmark rate was 4.00% for nearly all of February, before a 25 basis point hike late in the month, suggesting mortgage rates still have further to climb in the coming months.

However, the Halifax data is somewhat at odds with the Nationwide index, which has shown a consistent fall in house prices in recent months.

Nationwide said UK house prices fell 3.1% annually in March, which was the largest annual decline since July 2009, accelerating from the 1.1% fall seen the month before.

"Small sample size, lender behaviour, and adjusting the prices of homes sold for their characteristics are all probably having an unusually large bearing on the data at present," Capital Economics considered.

Nevertheless, the Halifax data still points at the wider trend of a weakening in the UK's housing market.

This was also reflected in Thursday's S&P Global/CIPS UK construction purchasing managers' index, which fell to 50.7 points in March from 54.6 in February.

The "sharp and accelerated" decline in house building was the "main area of concern", according to Tim Moore, S&P Global economics director.

"Cutbacks to new residential projects in the wake of subdued demand and rising interest rates contributed to the sharpest fall in housing activity across the construction sector for almost three years," he explained.

In contrast, work on civil engineering and commercial engineering projects improved during the month.

By Elizabeth Winter, Alliance News senior markets reporter

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