The outlook for the UK's housing market suggests a forthcoming softening, as households contend with escalating mortgage and energy costs attributed to the ongoing Iran war, according to Nationwide.
This forecast arrives on the heels of Nationwide's report, which indicated a 0.9% increase in house prices for March, suggesting that the market had "regained momentum" during the month.
Nevertheless, Nationwide cautioned that the spike in energy prices resulting from the Middle Eastern conflict poses a "significant shock to the global economy, clouding the outlook."
In light of anticipated interest rate hikes, lenders have responded by increasing mortgage rates and withdrawing hundreds of mortgage products in recent weeks.
According to Nationwide's statistics, March's growth elevated the average property value to £277,186, with annual price growth accelerating to 2.2%, a rise from 1% in February.
The building society expressed concerns that a prolonged conflict in the Middle East could substantially impact the market.
The sharp escalation in mortgage rates can be traced to a notable shift in expectations regarding future interest rate movements. Prior to the onset of the conflict, predictions indicated that the Bank of England would reduce rates twice this year. However, the recent surge in energy prices has prompted financial markets to foresee a potential increase in rates aimed at countering inflation.
This shift has compelled lenders to augment their mortgage rates. Recently, the average two-year fixed-rate mortgage climbed to 5.75%, up from 4.83% at the beginning of March, according to Moneyfacts, a financial information service. Simultaneously, the average five-year fixed-rate mortgage rose from 4.95% to 5.69%, reaching its highest point since July 2024.
Robert Gardner, Chief Economist at Nationwide, remarked that if elevated rates persist, "this could reverse some of the improvement in housing affordability that has taken place in recent years."
With consumer sentiment poised to be affected by the uncertain economic landscape and the looming possibility of increased energy costs, it is anticipated that activity within the housing market will soften.
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