Economic growth is likely to be slower and inflation higher than previously expected, according to the Nationwide report
A woman looking at houses for sale(Image: David Cheskin/PA Wire)
House price growth picked up in March, but the conflict in the Middle East has clouded the economic outlook and could lead to housing market activity softening, according to a report. Annual UK house price growth picked up to 2.2% in March, from 1.0% in February, Nationwide Building Society said.
Property values increased by 0.9% month-on-month, taking the average house price in March to £277,186.
Robert Gardner, chief economist of the Swindon-headquartered lender, said the pick-up in growth suggested the market had regained momentum after a slowdown recorded around the turn of the year.
But he warned the sharp rise in global energy prices in response to developments in the Middle East represented a “significant shock” to the global economy, clouding the outlook.
“In the near term, UK economic growth is likely to be slower and inflation higher than previously expected, although ultimately the impact will depend on the duration of the shock as well as the policy response,” he said.
Mr Gardiner said the outlook for interest rates was “particularly uncertain” and was dependent on whether the demand or supply side of the economy was more adversely affected.
“Nevertheless, financial market expectations for the future path of (the Bank of England base rate) have shifted dramatically,” he said. “Towards the end of March, three interest rate increases were priced in over the next 12 months, compared to two rate cuts being anticipated before the strikes on Iran.
“This shift has resulted in a sharp rise in longer-term interest rates (swap rates) that underpin fixed-rate mortgage pricing. If sustained, this could reverse some of the improvement in housing affordability that has taken place in recent years.”
He also warned that consumer sentiment was “likely to be dented” by the uncertain outlook and that with the prospect of rising energy costs, housing market activity would likely soften.
Mortgage rates have jumped in recent weeks, with financial information website Moneyfacts reporting that hundreds of deals have been withdrawn, with products trickling back into the market but at higher rates.
Tom Bill, head of UK residential research at Knight Frank, said: “The impact from the Middle East conflict on the housing market is still in the post.
“The fact mortgage offers last for six months means the effect of higher borrowing costs will filter into the market this spring and summer, putting downwards pressure on prices and transaction volumes.”
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said the price growth seen in March could “be the calm before the storm, if borrowing costs continue to climb in response to the latest geopolitical shock”.
She added: “Escalating tensions in the Middle East have upended inflation and interest rate expectations, something that could dampen demand if buyers find it harder to secure the mortgages they need.”
The average house prices in the first quarter of 2026, followed by the annual change, according to Nationwide Building Society:
Northern Ireland, £225,269, 9.5%
North West, £229,173, 3.3%
Scotland, £191,747, 3.0%
Wales, £215,411, 2.7%
North East, £170,378, 2.6%
London, £538,181, 1.7%
Yorkshire and the Humber, £214,866, 1.6%
Outer Metropolitan, £430,260, 1.0%
East Midlands, £236,016, 0.3%
South West, £305,701, 0.1%
West Midlands, £249,722, 0.0%
East Anglia, £273,237, minus 0.4%
Outer South East, £336,036, minus 0.7%
You must be logged in to post a comment Login