Pick-up in house price growth in March ‘could be the calm before the storm’

Nick Maud, lead analyst at Connells Group, said: “Nationwide has reported annual house price growth of 2.2 per cent in March, up from one per cent in February, confirming a return to modest momentum in the property market.

“Motivated first-time buyers in particular continued to benefit from a relative alleviation in affordability pressures, accounting for 33.8 per cent of sales at the end of March, according to Connells Group data.

“However, the conflict in Iran and ensuing upward pressure on global energy prices has undoubtedly shifted the calculus for the coming months.

“UK mortgage markets responded immediately, with lenders withdrawing hundreds of products from the market in March, alongside rapid repricing.

“In the last full week of March, the average rate on application for a two-year fixed mortgage was 4.5 per cent, a half-percent increase on the first week in January and overtaking the average five-year fixed at 4.4 per cent.

“In the same month, the Bank of England voted unanimously to hold the Base Rate at 3.75 per cent and market expectations have undergone a reversal, from pricing in two to three headline interest rate cuts at the start of the year, to three potential increases.

“However, this reflects an average balance of opinion, not a certain direction of travel.

“Meanwhile central government has announced targeted ‘cost of living’ support measures for certain households.

“As the Iranian regime becomes more entrenched and negotiation attempts seem to be faltering, the UK housing market and wider economy should brace itself for further turmoil.

“Heightened oil and gas prices will continue to generate inflationary pressure, and the Bank of England may seek to act more decisively to combat it, following accusations of delay in the immediate wake of the Ukraine war.

“Lenders will continue to review the pricing of their products, which will combine with more general affordability pressures to soften house price growth.

“This downside risk will be particularly marked in higher value regions such as the South East of England and London.

“Over the short term, the top end of the market could see an increase in applicants from the Middle East fleeing to a safe haven.”