Middle East conflict drags UK house prices into decline

UK house prices fell 0.6% in May, the first monthly decline of 2026, as annual growth slowed to 1.7% from 3.0% in April, according to Nationwide Chief Economist Robert Gardner.

The average property now stands at £278,024, down from £278,880 the previous month, on figures published in the latest Nationwide House Price Index.

Gardner attributed the loss of momentum directly to the conflict in the Middle East and the rise in energy prices and market interest rates that followed it.

He said some softening was to be expected given that backdrop, and the May reading marks the first time prices have gone backwards on a monthly basis at any point this year.

The annual rate effectively halved in the space of a single month, taking growth well below the pace recorded across the opening quarter.

Consumer confidence has weakened sharply since the conflict began. GfK’s headline index fell to its lowest level since late 2023 in April and posted only a marginal recovery in May, leaving sentiment near a two-and-a-half-year low as households absorb higher energy costs.

Gardner said measures of housing market sentiment had deteriorated alongside the wider mood, pointing to a clear cooling in buyer appetite through the spring.

The Royal Institution of Chartered Surveyors reported a steep drop in new buyer enquiries in March, sending its index to the weakest reading since 2023, and the measure stayed deep in negative territory in April.

The fall in enquiries signals thinner demand feeding through to prices over the coming months, with fewer buyers competing for available stock.

Gardner noted that the economy entered the shock on a firmer footing than expected, growing 0.6% quarter on quarter in the first three months of the year, while inflation softened more than forecast in April.

He cautioned that growth is now likely to come in weaker and inflation higher than previously expected across 2026 as a result of developments in the Middle East, with the eventual impact depending on how long the disruption lasts and how policymakers respond.

He also struck a more reassuring note on household resilience. Total household debt sits at its lowest level relative to income for around two decades, and households have built sizeable savings buffers, though Gardner acknowledged these are not evenly spread.

Housing affordability had been improving steadily in recent years as income growth outpaced house prices by a wide margin and borrowing costs edged down.

The hit to affordability from rising market rates has so far been modest. Gardner said swap rates, which underpin fixed-rate mortgage pricing, remain well below the highs reached in 2023 and broadly match levels seen in 2024, implying only a partial reversal of earlier gains.

He said this offered some confidence that any near term softening would prove short lived if the shock passes quickly and energy prices normalise.

Ian Futcher, Financial Planner at Quilter, said prices are coming under pressure as multiple headwinds weigh on momentum.

He expects the market to stay subdued while higher energy costs feed through to household budgets and stretch affordability, with buyers turning increasingly price sensitive as borrowing costs and wider financial pressures bite.

Futcher said mortgage rates would continue to dictate the pace of the market, warning that swap rates could edge higher again without a clear resolution to current tensions, and advised anyone looking to buy or remortgage to review their options early and keep flexibility with the support of a mortgage adviser.

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