Halifax has warned that the US-Israel war on Iran could slow mortgage rate decreases this year, as it reported that UK house price growth eased dramatically in February. The lender, part of Lloyds, said the conflict in the Middle East was likely to affect global economies, stoke inflation and reduce the likely rate of interest rate cuts that influence borrowing costs for homebuyers.
The value of a typical UK home rose 0.3% in February to £301,151, a significant dip from the 0.8% growth in January that pushed average prices above £300,000 for the first time. Analysts have cut the chances that the Bank of England will vote for another downward move in the 3.75% base rate when it meets later this month.
“Looking ahead, geopolitical uncertainties seem set to influence the outlook for inflation and the wider economy,” said Amanda Bryden, head of mortgages at Halifax. “Markets are now anticipating a more gradual path for interest rate reductions. If realised, the speed at which borrowing costs ease may be tempered.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, said the conflict had lifted energy prices and shrunk central bank rate cut expectations. “Swap rates have edged higher amid fears that rising prices will fuel inflation. A number of lenders have already increased their mortgage rates to reflect higher swap rates,” he said. On Thursday, HSBC, Nationwide and Coventry building societies became the first big UK lenders to raise rates on fixed mortgage deals.
Halifax said the annual rate of house price growth rose to 1.3% in February, the strongest in four months. Northern Ireland continues to show the strongest growth, up 6.3% annually, while London saw a 1% annual dip to £538,200. First-time buyers still face stretched affordability and constrained supply, particularly without family support.
Jeremy Leaf, a north London estate agent, said some buyers and sellers have been pressing the pause button since the war began. “We expect that button will be pushed a little harder if uncertainties over interest rates and inflation persist for much more than a few weeks,” he added.
