Mortgage demand has declined annually for the first time in over a year, driven by economic uncertainty stemming from the Iran war. The Mortgage Bankers Association reported a 0.8% drop in total mortgage application volume last week, with purchase applications down 7% year-over-year. Meanwhile, house prices fell 0.5% in March, marking the first decline since February, as mortgage rates spiked due to geopolitical tensions.
Core Developments
The average 30-year fixed mortgage rate decreased slightly to 6.51% from 6.57%, but economic instability kept demand low. Applications for FHA loans rose 5% due to lower rates compared to conventional loans. House prices dropped by £1,374 in March, with the average home now valued at £299,677, down from £300,000 earlier this year.
Market and Economic Impact
The housing market slowdown is attributed to rising mortgage rates, which climbed from 3.5% to 4.75% in weeks. A £200,000 mortgage over 25 years now costs £1,140 monthly instead of £1,002. Experts warn that prolonged uncertainty could further dampen demand and economic growth.
Geopolitical and Policy Factors
The Iran war has heightened inflation expectations, delaying anticipated interest rate cuts. A temporary ceasefire in the Strait of Hormuz led to a drop in oil prices and stock market rallies, but mortgage rates remain elevated. Analysts suggest rates could fall if the conflict eases, though long-term effects remain uncertain.