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The housing market in the UK is expected to face a downturn as households grapple with increasing mortgage and energy expenses, a consequence of the ongoing conflict in Iran, according to Nationwide. Despite this, the lender reported a rise in house prices during March, with an increase of 0.9%, suggesting a renewed market momentum for that month.
Nationwide highlighted that the sharp rise in energy costs triggered by the Middle East unrest represents a major disruption to the global economy, casting uncertainty over future market prospects. Following this development, mortgage rates have been driven up by lenders who, anticipating higher interest rates, have simultaneously withdrawn many mortgage products from the market. This shift has created pressure on buyers, with the average property price in March reaching £277,186, and annual price growth accelerating to 2.2% from 1% the previous month.
Mortgage interest rates have surged sharply due to revised expectations about future monetary policy. Initially, the Bank of England was projected to reduce rates twice in the current year, but the energy price spike has changed this outlook, leading markets to now predict interest rate hikes aimed at curbing inflation. As a result, lenders have responded by increasing mortgage rates significantly. For instance, the average two-year fixed rate climbed from 4.83% at the start of March to 5.84%, while the five-year fixed rate rose from 4.95% to 5.76%, reaching its highest level since September 2023.
Experts have issued warnings on the longer-term effects of sustained high rates. Robert Gardner, Nationwide’s chief economist, stated that persistent higher interest rates could reverse recent gains made in housing affordability, especially as consumer confidence is likely to suffer amid the uncertain economic outlook and rising energy bills. Caitlyn Eastell, a personal finance analyst at Moneyfacts, emphasized that many households may need to tighten their budgets because of these rising costs, and that first-time buyers with limited savings could find it particularly challenging to enter the housing market. Nevertheless, Gardner pointed out that household finances remain relatively strong, with low debt levels and substantial savings cushions, which may help alleviate some pressure despite ongoing financial strains. Additionally, around 90% of current mortgage holders are on fixed-rate agreements, shielding them from immediate rate increases. Ashley Webb, UK economist at Capital Economics, voiced skepticism over earlier predictions of 3.5% price growth this year, suggesting instead that prices might rise by only about 1% or potentially stagnate if conditions worsen, though he does not foresee major nominal price drops
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