UK house prices fall in May as Iran war and higher rates dent demand

UK house prices recorded their first monthly decline of 2026 in May, with Nationwide Building Society reporting an average price of £278,024 and a seasonally adjusted monthly fall of 0.6%.

On an annual basis growth slowed sharply from 3.0% in April to 1.7% in May, and Nationwide’s seasonally adjusted index moved to 551.0. Nationwide chief economist Robert Gardner attributed the loss of momentum to uncertainty from the Middle East conflict, higher energy costs and a jump in market-implied borrowing costs that has dented buyer confidence.

Market-level effects are evident in mortgage pricing and activity: shorter-term fixed mortgage rates have risen notably, reducing affordability for marginal buyers and curbing transaction volumes. Data cited by national press show two- and five-year fixed rates clustered near the high single digits for new deals, contributing to lower agreed sales and more cautious pricing during the spring season.

The wider context is the war in Iran, which has pushed up oil prices and global bond yields, feeding through to swap rates that underpin fixed mortgage pricing. Major estate agents such as Savills have said the conflict has “fundamentally changed” their housing market outlook and moved to downgrade forecasts for 2026, flagging a more pronounced short-term price adjustment.

Looking ahead, forecasters say the path depends on how long geopolitical risk persists and whether monetary policy expectations recalibrate. Surveys from market bodies and lenders point to weaker buyer sentiment into the summer, but several analysts note that if energy prices and swap rates normalise, any near-term weakening could prove temporary and prices may stabilise later in the year.