In another report revealing house prices declined in March, Halifax reported a fall of 1.0%. Nationwide also reported a decline days earlier. The Halifax average house price declined close to £2,900 to £288,430. Despite the lower house price, it is still higher than the same period last year by 0.3%. The March decline follows a boost in February brought about by lender cuts in mortgage offers, with some rates below the Bank of England’s standard base interest rate.

According to recent data released by the Bank, the number of mortgage approvals for February was the highest number since September 2022.

The housing price released by Halifax is based on their own mortgage lending. The average house price includes mortgage lending but does not include purchases for buy to let or cash purchases. It is estimated nearly a third of house sales in the UK are completed by cash buyers not impacted by the higher borrowing costs of current interest rates.

In February, competition from lenders led to an unexpected competitive lending market in the fight to grab the attention of borrowers. There was optimism the Bank of England’s Monetary Policy Committee (MPC) would soon cut the standard base interest rate. 

A cut to the rate will be the first time since March 2020 when the rate was cut to almost zero at 0.1% due to the pandemic.

As the UK began to emerge from the global pandemic, inflation continued to climb and reached double digits in the first part of last year despite the MPC increasing the base rate for fourteen consecutive meetings since December 2021. In September 2023, the MPC voted to keep the rate steady at 5.25% where it remains still.

Normally, lenders will offer their best rates near the base rate but slightly higher. As the MPC battled a stubborn inflation level stuck at 4.0% in February, lenders began to drop rates below the base rate of 5.25%. Home buyers took advantage of the cheaper borrowing opportunity, and the housing market experienced a boost in February.

The inflation report for the twelve months to January and reported in February revealed yet another 4.0% inflation level. It was not surprising that the first MPC meeting of the year held in February resulted in another vote to hold the rate steady. As the possibility of a quick cut to the base rate faded, lenders began to pull their lowest interest rate mortgage deals. However, there are still deals below the base rate to be found.

Forward to the next month and the inflation rate reported a decline from 4.0% to 3.6%. The March MPC meeting resulted in another hold to the base rate but for the first time in two years, there was not a vote by any member to increase the rate. Instead, there was one member voting for a cut.

The forecast for the base rate is for possibly three cuts this year. They will likely be minimal, and the MPC will be cautious with their decisions for despite inflation declining, it still has a way to go before reaching the target level set by the Bank of 2.0%. Experts believe the rate could be cut by 0.25% up to three times this year closing 2024 with a base rate of 4.75%.

Some expectations are for the first cut to happen as soon as June, while others believe it will not happen until the end of summer.

The rate cuts will help, but in comparison to the borrowing situation of just three and two years ago, it is a drastic difference. In all of 2021, the base rate remained at 0.1% until December when the MPC voted to raise the rate by 0.15% to 0.25%. In 2022, every MPC meeting resulted in a rate hike. In March 2022, the base rate was 0.75% and the next year in March 2023 it was 4.25%. Now, in March 2024, the Bank’s base rate is at the highest level since February 2008 when the MPC voted for a cut from 5.50% to 5.25%.

Borrowing now in comparison to the lender offers during the pandemic seem shockingly high, and for those borrowing large sums such as the case for home buyers, it is vastly different. No one is expecting a return to those historically low offers, but it should be noted current deals are surprisingly low and cheap in relation to the base rate being at a sixteen-year high.

Asking prices in the market are still elevated from the record growth during the pandemic buying that broke record highs month after month. Households are still feeling the squeeze from inflation making saving for a deposit to buy property difficult. So, lower mortgage interest rate offers might not be enough to boost the housing market this year, at least not to the level in which record breaking months became a normal occurrence. 

Perhaps house prices need a natural correction, and because inflation, while declining, will take awhile to reach the consumer level, sellers might need to sit in a subdued market vastly different than the one of recent years, and then home buyers will return more able to afford homeownership.