UK house prices increased at the fastest rate in almost 18 months in March, although surging mortgage rates amid the Iran war are likely to lead to a market slowdown, according to Nationwide.
The UK’s biggest building society said the price of a typical UK home increased by 0.9% month on month in March, the largest increase since December 2024.
The increase, which compares with a 0.3% rise recorded in February and is ahead of economists’ expectations of 0.6% growth, means the average price of a UK home now stands at £277,186. Annual house price growth picked up to 2.2% in March, from 1% in February.
However, Nationwide warned that the US-Israel war on Iran had “clouded the outlook”, with financial markets expecting the Bank of England’s monetary policy committee to raise the base rate three times over the next 12 months from 3.75%. Prior to the start of the conflict in the Middle East, analysts were expecting two rate cuts this year.
“This shift has resulted in a sharp rise in longer-term interest rates [swap rates] that underpin fixed-rate mortgage pricing,” said Robert Gardner, the chief economist at Nationwide. “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.”
Average mortgage rates have risen above 5% in recent weeks as lenders have pulled hundreds of deals in the biggest upheaval since the aftermath of the 2022 mini-budget.
On Monday, the average two-year fixed-rate mortgage hit 5.77%, up from 4.83% at the start of March and the highest level since August 2024, according to Moneyfacts.
A five-year fixed-rate mortgage has risen from 4.95% at the start of the month to 5.7%, the highest level since November 2023.
Karen Noye, a mortgage expert at Quilter, said: “Expectations of easing borrowing costs and gradually improving affordability had been supporting activity at the start of the year, but any real progress has been rapidly undone in the last month.
“Since the start of the conflict, mortgage rates have risen sharply and lenders have been withdrawing products or repricing fixed-rate deals at short notice. For prospective homebuyers and movers, this has meant a rapid deterioration in affordability.”
Northern Ireland continues to show the strongest growth in house prices across the UK, up by 9.5% year on year in the first quarter to £225,269.
The next fastest rate of house price growth is in the north-west of England, up 3.3% to £229,173, followed by Scotland, up 3% to £191,747.
Two of the 13 regions covered in Nationwide’s quarterly report on prices across the UK had year-on-year declines.
The weakest was the outer south-east of England – defined by Nationwide as covering towns and regions including Canterbury, the New Forest, Portsmouth and Winchester – which recorded a 0.7% year-on-year fall in the first quarter to £336,036.
This was followed by East Anglia where the average price fell by 0.4% to £273,237. House prices across the east and West Midlands, and the south-west, all rose less than 1% in value across the same period.
Amy Reynolds, the head of sales at the Richmond estate agency Antony Roberts, said: “The property market continues to demonstrate resilience despite a backdrop of global uncertainty. The Middle East conflict has contributed to increased caution across financial markets. Mortgage rates have already edged upwards in response, and this is naturally becoming a talking point among applicants.
“We are seeing a slight softening in viewing numbers as some buyers pause to assess the situation.”