- Higher mortgage rates are quickly reshaping affordability across the UK housing market.
- Energy price shocks linked to the Iran conflict are feeding into inflation fears and rate expectations.
- Lenders have pulled products and repriced deals, pushing borrowing costs sharply higher.
The UK housing market showed a burst of strength in March, but the mood is already shifting. Data from Nationwide Building Society showed house prices rose 0.9 per cent over the month, pushing the average property value to £277,186. Annual growth also picked up to 2.2 per cent, up from 1 per cent in February.
For a moment, it looked like the market had found its footing again.
But that rebound is running into fresh pressure. The sharp rise in global energy prices, triggered by the Iran conflict, is now feeding through to household costs and financial markets. Nationwide described the situation as a “significant shock to the global economy, clouding the outlook”, as quoted in a news report.
The concern is less about where prices are now, and more about where demand goes next.
Borrowing costs climb fast
Expectations around interest rates have flipped in a matter of weeks, and that has hit mortgage pricing almost immediately.
Before the conflict escalated, markets were leaning towards rate cuts from the Bank of England. That view has now shifted towards potential increases, as policymakers try to contain inflation driven by higher energy costs.
Lenders have reacted quickly. Hundreds of mortgage products have been withdrawn or repriced, with rates moving up at a pace not seen in months.
According to Moneyfacts, the average two-year fixed mortgage rate has climbed from 4.83 per cent at the start of March to around 5.84 per cent. Five-year fixes have also risen, from 4.95 per cent to about 5.76 per cent, reaching their highest level since September 2023.
The impact on borrowers is already visible. For a typical £250,000 loan over 25 years, annual repayments on a two-year fixed deal have increased by nearly £1,800 since early March. Five-year deals are up by more than £1,400.
Confidence begins to wobble
The bigger risk now is sentiment.
Higher borrowing costs, combined with rising energy bills, are expected to put pressure on household budgets just as the market was stabilising. Nationwide’s chief economist Robert Gardner reportedly said that if elevated rates persist, they could undo recent improvements in housing affordability.
There is also a wider psychological shift underway. As uncertainty builds around inflation and interest rates, buyers may hold back, and sellers could become more cautious on pricing.
If the conflict drags on and energy costs remain elevated, the housing market may struggle to maintain its recent momentum. For now, the data still reflects a market that was recovering. What comes next will depend on how long these external pressures stick around.
