"If the latest shock passes relatively quickly, and energy prices normalise in the quarters ahead, any near-term softening in the housing market will also prove short-lived"
- Robert Gardner - Nationwide
UK annual house price growth accelerated to 3.0% in April, up from 2.2% in March, according to Nationwide's latest House Price Index. Prices rose 0.4% month on month on a seasonally adjusted basis, bringing the average property price to £278,880.
"Despite the uncertainty caused by developments in the Middle East and the subsequent rise in energy prices, the UK housing market has continued to regain momentum following the slowdown recorded around the turn of the year," said Robert Gardner, Nationwide's chief economist.
"This is somewhat surprising given that indicators of consumer confidence have weakened noticeably. GfK's headline index has fallen to its lowest level since late 2023, reflecting households' more pessimistic views of the economic outlook and their own financial position over the year ahead."
Gardner noted that housing market sentiment has also deteriorated. "The Royal Institution of Chartered Surveyors reported a sharp fall in new buyer enquiries in March, taking the index to its weakest reading since 2023. This softening is likely to have been influenced by higher market interest rates following the onset of the conflict, alongside a more uncertain backdrop."
Why is the market proving resilient?
Gardner pointed to the relative strength of household finances as a key factor. "In aggregate, household debt is at its lowest level relative to income for around two decades, and sizeable savings buffers have been built up in recent years, although these have not been evenly distributed across households."
He added that affordability had been improving steadily prior to recent rate moves. "Moreover, housing affordability had been improving steadily in recent years due to a combination of income growth outpacing house price growth by a wide margin and a modest decline in mortgage rates."
"While market interest rates have risen in recent months, the impact on affordability has so far been limited. Indeed, swap rates, which underpin fixed-rate mortgage pricing, remain well below the highs reached in 2023 and are broadly in line with levels prevailing in late 2024, implying only a partial reversal of earlier gains."
On the outlook, Gardner acknowledged the risks while striking a cautiously optimistic note.
"Looking ahead, UK economic growth is likely to be somewhat weaker and inflation higher than previously expected as a result of developments in the Middle East, although the ultimate impact will depend critically on the duration of the shock and the policy response."
"However, the UK economy and housing market have proved remarkably resilient in recent years. This provides some confidence that, if the latest shock passes relatively quickly, and energy prices normalise in the quarters ahead, any near-term softening in the housing market will also prove short-lived."
Industry reaction
Tom Bill, head of UK residential research at Knight Frank, warned that the effect of rising mortgage rates would feed through gradually rather than immediately. "The impact of rising mortgage rates on house prices will be more gradual than sudden as offers that pre-date the conflict work their way through the system, which is why we have downgraded our price forecasts for this year marginally," he said.
"Borrowing costs have been volatile in recent weeks, underlining the high degree of uncertainty that exists over how long the war lasts, to what extent it escalates and the impact of second round effects on inflation. Markets are pricing in two further hikes in Bank Rate this year, but the Bank of England appears as uncertain as anyone else about what comes next and looks content to sit on its hands for now."
Nathan Emerson, chief executive of Propertymark, said the figures reflect supply constraints more than demand strength. "While the latest Nationwide House Price Index shows house prices continuing to edge upwards, this reflects a market still heavily influenced by constrained supply rather than a sharp surge in demand."
"Stock levels remain limited across many areas, meaning even modest levels of buyer activity can translate into upward pressure on prices. From a market perspective, this signals cautious but improving sentiment, rather than a renewed boom. Affordability remains a key constraint, with higher mortgage rates continuing to cap the pace of growth. As a result, the market appears to be stabilising in a low-growth environment, where structural supply issues are doing much of the heavy lifting on pricing."
Jeremy Leaf, north London estate agent and a former RICS residential chairman, offered a characteristically direct assessment. "Write the housing market off at your peril," he said.
"Another market survey, this time from the country's largest building society, shows prices holding up better than we'd dared hope, particularly of houses, bearing in mind continuing uncertainties about the cost of living, including mortgages."
"Although the data covers the period up to the first month of the war in Iran, perhaps before it became apparent hostilities would become more protracted, we are finding on the ground realism is starting to prevail. Buyers and sellers are negotiating hard but the overwhelming majority of transactions are continuing. On the other hand, the volume of property on the market means it's taking longer to secure commitment and likely to continue that way for several months yet."
Gareth Lewis, deputy chief executive of specialist lender MT Finance, raised questions about what the headline figures are actually capturing. "While it is only a small uptick in prices, one wonders where they get these figures from when we are seeing values under pressure and a significant volume coming in lower than anticipated," he said.
"As these prices were negotiated a few months ago, this may be why the figures aren't reflecting a softening market. But from a lending perspective we are seeing valuers cautious on value while buyers are looking for a steal and prepared to negotiate on price."
