UK house price growth lost its footing in May, with Britain’s biggest building society warning that rising energy costs, dearer mortgages and a hit to consumer confidence from the conflict in the Middle East have driven buyers to the sidelines.
Nationwide’s latest house price index showed annual growth slowing to 1.7% in May, sharply down from 3% in April. On a seasonally adjusted basis, prices slipped 0.6% month-on-month, the first monthly fall recorded so far this year — leaving the average UK home valued at £278,024, against £278,880 the month before.
Robert Gardner, Nationwide’s chief economist, said the loss of momentum was no great surprise given the wider backdrop. “Given the uncertainty caused by developments in the Middle East and the subsequent rise in energy prices and market interest rates, some loss of momentum was to be expected,” he said.
Sentiment indicators have turned distinctly chillier. GfK’s headline consumer confidence index slumped in April to its lowest reading since late 2023 and edged up only marginally in May. The Royal Institution of Chartered Surveyors (Rics) reported a sharp fall in new buyer enquiries in March, dragging its measure to the weakest level since 2023, and the indicator stayed firmly in negative territory in April.
For property investors, the cocktail of softer demand and tighter affordability echoes the squeeze felt earlier in the spring, when average UK house prices slipped below £300,000 amid mortgage rate fears tied to the Iran war. Halifax data subsequently confirmed a second consecutive monthly drop as the conflict pushed lending costs higher.
Mortgage costs have moved sharply in markets worldwide as investors price in the risk that central banks will be forced to hold, or even lift, interest rates to counter inflation driven by the squeeze on oil and gas supplies.
British borrowers have been worst affected. According to Moneyfacts, the average two-year fixed rate has jumped 0.91 percentage points to 5.75% since the conflict erupted at the end of February. On a £200,000 mortgage over 25 years, that adds roughly £107 a month, lifting repayments to £1,258.
By comparison, the average 30-year fixed rate in the United States has risen just 0.38 percentage points to 6.36%, according to the Federal Reserve. Mortgage rates in Germany have climbed by around 0.3 percentage points. UK swap rates, the wholesale benchmark lenders use to price fixed deals, remain below the peaks of 2023 but have given back much of the relief borrowers enjoyed earlier in the year, raising the question of whether the Bank of England’s base rate path can still bend lower in the second half of 2026.
For landlords and portfolio buyers, the immediate squeeze is on financing rather than fundamentals. Rental demand remains firm, but higher fixed-rate mortgages compress yields and lengthen the breakeven on new acquisitions. The shift comes against a backdrop in which buy-to-let investment has fallen to its lowest level since 2007, with landlords increasingly heading north in pursuit of stronger gross yields and lower entry costs, a pattern May’s data is unlikely to reverse.
Nationwide is at pains to point out that the slowdown could prove temporary if the geopolitical shock fades. Gardner noted that the UK economy entered this period “on a slightly stronger footing than expected”, with GDP rising 0.6% in the first quarter and April inflation undershooting expectations.
“Nevertheless, economic growth is likely to be somewhat weaker and inflation higher than previously expected this year as a result of developments in the Middle East,” he said. “The impact will ultimately depend on the duration of the shock and the policy response.”
Affordability had been quietly improving before the latest leg up in rates, with wages outpacing house price growth and borrowing costs easing. Gardner argued that the recent rise in market interest rates has, so far, had only a limited effect on affordability, with swap rates still below 2023 peaks and broadly in line with levels seen last year.
“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,” he said.
Rob Wood, chief UK economist at Pantheon Macroeconomics, said May’s fall was bigger than he had pencilled in, as “homebuyers retreated to the sidelines to await clarity over where interest rates would go over the coming year”.
Ashley Webb, senior UK economist at Capital Economics, was blunter: “[The fall] provides further evidence that the leap in mortgage rates since the start of the Iran war is denting house price growth.”
For investors weighing acquisitions over the coming quarter, the message from Nationwide’s May print is one of caution rather than capitulation. The fundamentals — wage growth, normalising swap rates and a still-resilient labour market — argue against a deeper correction, provided the conflict and its energy-price aftershock do not drag into the autumn. Until then, expect transaction volumes to stay thin, vendors to negotiate harder, and well-financed cash and low-LTV buyers to enjoy a rare moment of pricing power.
