Halifax house price index paints 'pessimistic' picture amid high mortgage rates

House prices experienced a monthly fall for the first time since September 2023 during March, although they remained up against the year, the latest Halifax House Price Index (HPI) has revealed.

The lender’s data showed a typical home cost £288,340, £2,900 or 1% down month-on-month. This figure was 0.3% higher annually when seasonal impacts are taken into account. However, this too marked a slowdown from growth of 1.6% in February.

However, it said “underlying demand” and signs that the cost of living crisis is easing would be likely to keep house prices in the “narrow range” they have remained within for the past two years.

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Analysts have said the figures paint a “pessimistic” picture, coming after HPI data released by Nationwide earlier this week showed an unexpected drop in monthly prices. They said the downward trajectory was likely to be down to a lack of significant movement in mortgage rates. Mortgage markets are believed to be waiting for signs that the Bank of England will cut interest rates from their current 16-year-high of 5.25%.

It comes after Halifax recently released data showing renting worked out cheaper than paying a first-time buyer mortgage in most parts of the UK in 2023. This was the case despite a surge in private rents.

Halifax: ‘house prices in Northern Ireland leading the way’

Halifax’s HPI has shown a similar geographical disparity in house price performance to other indices. Northern nations and regions of the UK appear to be seeing average prices grow, while southern areas continue to flounder.

Northern Ireland led the way, with prices up 4.3% against the year. It means the average price of a property in the nation is now £7,972 more expensive at £194,743. The North West (+3.7%) and North East (+2.5%) have also both seen relatively healthy growth.

But in Eastern England, homes are 0.9% (£2,878) cheaper year-on-year at £330,627, with the South East (-0.7%) and South West (-0.2%) not far behind. London saw prices go up by an average of 0.4%.

Reacting to the latest data, the director of Halifax Mortgages Kim Kinnaird said the overall decline in average prices showed affordability remains a “challenge” for those looking to buy. She added that higher mortgage rates are yet to hit some homeowners, meaning the housing market “is still to fully adjust”. She also warned that the market is still “sensitive” to any shocks, such as a slower pace of base rate cuts, which meant “significant” price rises are unlikely to be on the way in 2024.

But, she added: “The broader picture is that house prices are up year-on-year, reflecting the opposing forces of an easing cost of living squeeze – now that pay growth is outpacing general inflation – and relatively high interest rates.

“Taking a slightly longer-term view, prices haven’t changed much over the past couple of years, moving in a narrow range since the spring of 2022, and are still almost £50,000 above pre-pandemic levels. Looking ahead, that trend is likely to continue.

“Underlying demand is positive, as greater numbers of people buy homes, demonstrated by recent rises in mortgage approvals across the industry and underpinned by a strong labour market. And with rental costs rising at record rates, home ownership continues to be an attractive option for those who can make the sums work.”

Another HPI comes out ‘gloomier’ than expectations

After the Nationwide HPI confounded expectations earlier this week with a monthly dip in average prices, the Halifax HPI had been expected to show a small 0.1% uptick - and a 1.45% annual increase.

The fact that it came in well-below expectations has painted “a more pessimistic picture” than Nationwide’s index, says head of investment at Interactive Investment, Victoria Scholar. 

“However both data points suggest the housing market remains weak on the back of a prolonged period of elevated interest rates as the market waits patiently for the Bank of England to start loosening monetary policy. Expensive mortgage rates have disincentivised property transactions pushing rental costs through the roof instead,” she added.

On a local level, Jeremy Leaf - a North London estate agent and former RICS residential chairman - said he was seeing a slightly different picture to Halifax. “Prices may be softening a little but we are finding in our offices that this is more to do with better choice of properties and hard bargaining than a weakening market,” says Leaf.

“Mortgage approvals from the Bank of England show expectations that interest rates will fall are prevailing over worries about the economy. We need to bear in mind too that the Halifax numbers do not include cash buyers which make up over a third of purchases and is a sector of the market which is especially active at present.”