The UK property market is facing a potential slowdown as the economic ripples of the conflict involving Iran trigger a surge in mortgage and energy expenses, according to the Nationwide Building Society.
This sobering forecast comes on the heels of a seemingly optimistic March. Nationwide revealed that house prices had briefly regained their footing last month, climbing 0.9% to reach an average property value of £277,186. Year-on-year price growth also accelerated to 2.2%, a noticeable bump from February’s 1% increase.
However, the escalating situation in the Middle East has cast a long shadow over this nascent recovery. Nationwide cautioned that the resulting spike in global energy prices acts as a significant economic shock that is rapidly clouding the housing outlook.
Before the geopolitical crisis intensified, financial markets largely anticipated the Bank of England would implement a pair of interest rate cuts this year. Those hopes have quickly evaporated. Driven by renewed inflation fears linked to soaring energy costs, the market now expects the Bank to raise rates—and lenders have rapidly pulled hundreds of products to adjust their mortgage offerings in response.
Financial data provider Moneyfacts reports a dramatic escalation in borrowing costs over a matter of weeks. The average two-year fixed mortgage rate skyrocketed from 4.83% in early March to 5.84%. Similarly, five-year fixed deals jumped from 4.95% to 5.76%, hitting a peak not seen since September 2023.
For a typical buyer taking out a £250,000 mortgage over 25 years, these rate hikes translate to a painful addition of almost £1,800 annually on an average two-year fix, or more than £1,400 a year on a five-year deal.
Robert Gardner, Nationwide’s chief economist, warned that if these elevated borrowing costs persist, they threaten to undo recent strides in housing affordability.
"With consumer sentiment also likely to be dented by the uncertain outlook and the prospect of rising energy costs, housing market activity is likely to soften," Gardner noted.
The renewed financial pressure is expected to hit first-time buyers the hardest. Caitlyn Eastell, a personal finance analyst at Moneyfacts, observed that households are once again being forced to tighten their belts, which will inevitably keep buyers with smaller deposits locked out of the property ladder.
Despite the grim forecast, there are vital shock absorbers built into the current market. Gardner pointed out that household debt relative to income is at a two-decade low, and many families still hold significant savings buffers accumulated over recent years. Furthermore, roughly 90% of current mortgage holders are locked into fixed-rate agreements, shielding the vast majority from immediate financial pain.
Consequently, industry experts are heavily revising their annual predictions. Ashley Webb, a UK economist at Capital Economics, noted that initial forecasts of 3.5% property price growth for the year are now highly unlikely to materialize.
"Depending on how far mortgage rates rise and by how much the economy weakens, prices may rise by a more modest 1.0% or so, or even stagnate in an adverse scenario," Webb said, though he added that a massive, outright collapse in housing prices remains improbable.