UK house prices expected to keep falling as mortgage rates climb

UK house prices are expected to come under renewed downward pressure in the coming months as rising geopolitical tensions in the Middle East continue to weigh on mortgage rates, affordability and buyer confidence.

That is the view of Tom Bill, head of UK residential research at Knight Frank, who warned that higher borrowing costs are likely to further dampen market activity and place additional pressure on pricing across parts of the UK housing market.

Bill said weakening consumer confidence and growing economic uncertainty linked to the conflict could continue to affect buyer sentiment, particularly if instability persists or energy prices rise further.

While short-term pressure on house prices is expected, Knight Frank believes modest growth could return later in the year, depending on the duration of the geopolitical disruption and how the government responds to the wider economic impact in future fiscal decisions.

He said: “The recent spike in mortgage rates will only put gradual downwards pressure on house prices as more favourable offers that pre-date the Middle East conflict take several months to lapse. It means some buyers are keen to complete while others have seen their spending power reduced.

“We expect house prices to begin falling in coming months but modest growth to return by the end of the year. However, that will depend on how long the conflict lasts, to what extent it escalates and how the government responds to the economic shock, whoever is chancellor at the time of the next Budget.”

Bill’s comments follow the release of the latest UK house price index released by Halifax on Friday, which revealed that property prices in the UK fell for a second consecutive month in April.

Halifax, which is part of Lloyds – Britain’s biggest mortgage lender – said that the cost of a typical UK home fell by 0.1% in April, to £299,313. This followed a 0.5% fall in March.

Halifax said the annual rate of house price growth had slowed to 0.4% from 0.8%.

Amanda Bryden, head of mortgages at Halifax, said: “After a strong start to the year, recent global developments have added a greater degree of uncertainty to the outlook.

“In particular, higher energy prices have fed into inflation expectations, prompting markets to reassess the path for interest rates – a shift that has already pushed up borrowing costs for many buyers.

“This understandably leads to more caution among some households, with the cost of living once again front of mind and extra thought being given to planned property moves.”

While underlying demand remains, buyer activity has been relatively subdued in recent weeks as purchasers become increasingly price sensitive in the current market.

James Nightingall of HomeFinder AI said: “In April, some house hunters took a break to enjoy the Easter holidays whilst others ceased the opportunity to arrange viewings or put in an offer. Although buyer interest remains steady overall, the property market hasn’t seen the spike in activity usually associated with Spring as interest rates and geopolitical developments continue to fuel uncertainty.”

Chris Hodgkinson, managing director of House Buyer Bureau, added: “The problem facing the market at the moment is that many sellers are still pricing based on expectation rather than current market reality and that’s creating a growing disconnect between buyers and sellers.”