UK House Prices Record Biggest Monthly Drop in Nearly a Year Amid Middle East Uncertainty

UK house prices declined in May, marking their first monthly fall since December as economic uncertainty linked to the conflict in Iran weighed on buyer confidence and housing demand.

According to data released by mortgage lender Nationwide, average house prices fell by 0.6% during the month. The decline was significantly larger than economists’ expectations of a 0.2% decrease and represented the steepest monthly drop since June 2025.

Annual House Price Growth Slows Sharply

While property values remain higher than a year ago, the pace of growth slowed considerably.

Nationwide reported that annual house price growth eased to 1.7% in May, down from 3% in April. The figure also missed analysts’ forecasts, which had pointed to a 2.2% year-over-year increase.

The latest data suggests the UK housing market is losing momentum as economic and geopolitical concerns begin to influence purchasing decisions.

Iran Conflict Impacts Consumer Confidence

Nationwide Chief Economist Robert Gardner said growing uncertainty stemming from developments in the Middle East has contributed to weaker activity across the housing sector.

According to Gardner, rising energy prices and higher market interest rates have created conditions where a slowdown in housing demand was widely anticipated.

He also noted that consumer confidence has weakened noticeably since the start of the conflict, reducing the willingness of many households to make major financial commitments such as purchasing property.

Mortgage Rates Continue to Rise

One of the biggest challenges facing prospective homebuyers is the increase in borrowing costs.

Mortgage rates have moved higher since the outbreak of the Iran conflict as financial markets increasingly expect the Bank of England to raise interest rates later this year instead of cutting them.

Data from Rightmove showed that the average two-year fixed mortgage rate reached 5.13%, while the average five-year fixed rate climbed to 5.15%. Both figures are approximately half a percentage point higher than they were a year ago.

Higher mortgage costs have made affordability more challenging for many buyers, placing additional pressure on housing demand.

Property Market Sentiment Remains Weak

Recent surveys indicate that sentiment across the UK property market remains subdued.

The Royal Institution of Chartered Surveyors reported the most widespread decline in house prices since November 2023 during April. Survey respondents also highlighted weaker sales activity and softer buyer demand, particularly in London and southern England where property prices are generally higher.

The organization described both transaction volumes and overall market confidence as relatively weak.

Other Lenders Report Similar Trends

Nationwide’s findings are consistent with data from other major mortgage providers.

Halifax reported a 0.1% decline in UK house prices during April and noted that property values were only 0.4% higher compared to the same period last year.

The combined data suggests that the UK housing market is facing increasing headwinds from rising borrowing costs, weaker consumer confidence, and heightened geopolitical uncertainty, all of which could continue to limit price growth in the coming months.