Bad news for interest rate hikes in the UK
UK house prices accelerated in March, with annual growth climbing to 2.2% from just 1.0% in February, according to the latest Nationwide House Price Index. On a monthly basis, prices rose a solid 0.9%, pushing the average UK house price to £277,186.
The pickup suggests the housing market had started to regain momentum after a softer period around the turn of the year. However, fresh economic shocks could complicate the picture for both homebuyers and the Bank of England.
“UK annual house price growth picked up to 2.2% in March, from 1.0% in February. Prices increased by 0.9% month on month, after taking account of seasonal effects,” said Nationwide’s chief economist, Robert Gardner.
Regional differences remained stark in the first quarter of 2026. Northern Ireland led the way with a remarkable 9.5% annual increase, followed by the North West (3.3%) and Scotland (3.0%). Southern England lagged, with England as a whole posting just 0.9% growth and some areas like the Outer South East seeing prices fall 0.7%.
Detached homes continued to outperform, rising 2.4% over the year, while flats were the weakest segment, down 0.5%.
Geopolitical shock upends rate expectations
The brighter housing data arrives at a tricky moment. A sharp rise in global energy prices triggered by developments in the Middle East has clouded the economic outlook, with UK growth likely slower and inflation higher than previously forecast in the near term.
This has dramatically shifted financial market expectations for Bank of England policy. Towards the end of March, markets were pricing in three interest rate increases over the next 12 months – a complete reversal from earlier expectations of two rate cuts before the escalation in the Middle East.
The Bank of England held its key rate at 3.75% in March, and the next decision is due in April. Higher, longer-term interest rates that influence fixed mortgage pricing have already risen sharply as a result.
“If sustained, this could reverse some of the improvement in housing affordability that has taken place in recent years.” He added that consumer sentiment is likely to be dented by the uncertain outlook and rising energy costs, potentially softening housing market activity,” Gardner said.
Buffers in place, but risks remain
On the positive side, UK households enter this period with relatively solid finances. Household debt is at its lowest level relative to income in two decades, and many families have built up savings buffers.
Around 90% of existing mortgage holders are on fixed-rate deals, shielding them from immediate rate changes. Mortgage rates themselves have risen less dramatically than during previous shocks.
Still, the labour market has cooled, with unemployment edging higher, and any sustained increase in borrowing costs could weigh on buyer demand.
What it means for the Bank of England
Stronger house price growth is typically a sign of resilient demand, which might ordinarily support arguments for tighter monetary policy. But in the current environment, the data may actually complicate the case for rate hikes.
The housing market’s momentum comes against a backdrop of geopolitical uncertainty that is already pushing up inflation expectations. Policymakers will be watching closely to see whether the energy shock hits demand or supply more severely – and how long it lasts.
For now, the reversal in market pricing toward potential rate hikes represents a clear headwind for affordability and activity in the months ahead. If mortgage rates rise further or stay elevated, the modest recovery in the property market could prove short-lived.
