Leading high street lender Nationwide said the average cost of a home in the UK dipped 0.4% month on month to £261,962, following a 0.2% drop in March.
The annual rate of growth has come down from 1.6% in March to 0.6% in April.
Lenders, including in the past few days, NatWest, Santander and Nationwide, have been increasing their fixed rate offers as hopes of an early move from the Bank of England to cut the cost of borrowing have receded.
A slower than expected easing of the rate of inflation, continuing strong wages growth, and more “hawkish” comments from members of the Bank’s rate setting Monetary Policy Committee (MPC) have pushed out the expected date of the Bank’s first move.
Markets are now pricing in August as the most likely date for rates to start coming down from their current level of 5.25%.
As a result, average fixed mortgage rates have been steadily rising since they bottomed out early in the year when lenders briefly offered deals below 4% leading to a brisk start to 2024 in the property market.
Today the average two-year fixed rate deal stood at 5.91%, compared with a low of 5.55% on January 25, according to analysts Moneyfacts.
Five-year deals today averaged 5.48%, up 30 basis points from the low point of 5.18% on 1 February. Other factors weighing on the property market include stretched affordability and prolonged political uncertainty in the run-up to the general election.
Nationwide’s chief economist Robert Gardner said: “The slowdown likely reflects ongoing affordability pressures, with longer term interest rates rising in recent months, reversing the steep fall seen around the turn of the year. House prices are now around 4% below the all-time highs recorded in the summer of 2022, after taking account of seasonal effects.
“Recent research carried out by Censuswide on behalf of Nationwide found that nearly half of prospective first-time buyers have delayed their plans over the past year.
“Among this group, the most commonly cited reason for delaying their purchase is that house prices are too high (53%), but it is also notable that 41% said that higher mortgage costs were preventing them from buying.”
Ranald Mitchell, director at financial advisers Charwin Private Clients, said: “Buyers are behaving cautiously at the moment so the fall in prices in April comes as no surprise. The ebullience at the start of the year has been slowly eroded as mortgage rates have edged up.
Property agents are calling on the Bank of England to cut interest rates after the latest inflation figures showed a drop.
Inflation fell to its lowest level in more than two years this morning at 3.4%, increasing the pressure on the Bank’s Monetary Policy Committee to cut the base rate.
The Bank held the base interest rate at 5.25% for the fourth time running last month, and warned that a cut wasn’t imminent.
Result
It is due to announce the result of its latest meeting tomorrow, with speculation that it will hold the rate again at 5.25%.
Mortgages are creeping upwards, increasing the amount homeowners have to pay if they come off a fixed rate.
Ideal time
Propertymark says now is the ‘ideal time’ to make a cut to give the housing market a boost.
This is an ideal time for the Bank of England to start considering a cut in interest rates.”
Nathan Emerson, CEO of Propertymark (main picture), says: “This is an ideal time for the Bank of England to start considering a cut in interest rates when they meet this month.
“Andrew Bailey, the Governor of the Bank of England, said recently that inflation does not have to fall to 2 per cent before the central bank starts considering cutting interest rate,” he says.
“Propertymark’s own Housing Insight Report shows that there has been an average 120 per cent increase in the number of potential buyers registered per member branch, and this is potentially an ideal time to revitalise the housing market.”
Boost
Simon Gammon, managing partner at Knight Frank Finance, says: “Today’s figures will provide a nice boost to sentiment in the housing market. The decision by many lenders to notch up mortgage rates recently took people by surprise, but today’s figures should steady the ship. The drop in inflation may even pave the way for a spate of cuts to mortgage rates during the coming fortnight.
“That said, these cuts will be pretty marginal. We don’t expect mortgage rates to begin falling more meaningfully unless we see an outsized drop in the annual rate of inflation during the next two releases, or until the Bank of England begins cutting the base rate. The lenders have cut their margins thin in an attempt to maintain market share, so they’re largely out of options until their cost of funds begins to fall.”
More mortgage providers will increase their rates on new fixed deals on Friday following a series of changes since the start of the year.
January saw lenders cutting their rates sharply, bringing some relief to 1.6 million people set to remortgage this year.
But higher costs faced by providers to fund mortgage lending means many have raised rates again in recent days.
HSBC, NatWest and Virgin Money are all increasing the cost of new deals.
This will mean the end of widely available five-year fixed deals with a rate of less than 4%. The average rate on all new fixed deals has been edging higher recently as lenders have altered their pricing.
“This may catch some borrowers by surprise when the rate story this year has generally been one of falling rates,” said David Hollingworth, from broker London and Country.
He said lenders had been shifting rates regularly. They are responding to the view of investors who now expect the Bank of England’s Monetary Policy Committee to make fewer, and later, changes its base rate of 5.25% this year than previously anticipated. Cuts in this rate makes borrowing less expensive.
The interest rate on a fixed mortgage does not change until the deal expires, usually after two or five years, and a new one is chosen to replace it. Doing nothing would leave people on a variable rate, which is very expensive.
About 1.6 million existing borrowers have relatively cheap fixed-rate deals expiring this year.
Santander, Coventry Building Society and TSB all raised rates on new fixed deals earlier in the week.
“HSBC’s best buy deals were never going last long once Santander pushed up its fixed rates,” said Aaron Strutt, of mortgage broker Trinity Financial.
“While they have gone up, [deals] are still reasonably priced. Some lenders now offer two-year fixed-rates priced around 4.4% and five-year fixes priced around 4.2%.
“Lenders have had a busy start to the year and the property market has really picked up. These rate hikes may well start to knock the property sector again if they continue.”
Andrew Montlake, managing director of Coreco mortgage brokers, said: “There is massive sense of deja vu as several mainstream lenders have increased their rates with little notice in a throwback to the dark days of 2023.
“This all makes life extremely difficult for those trying to find a new mortgage, as once again, quick decisions are needed or carefully worked out budgets need to be revisited, which can sometimes mean the difference between obtaining their dream home or not.”
However, there are signs of lenders failing to settle on where rates should be set. Halifax, part of Lloyds Banking Group, is cutting the rates on some of its deals on Friday.
“I expect there will still be plenty of jockeying for position as the market remains extremely competitive but in the short term we may still see more movement in mortgage rates,” Mr Hollingworth said.