By Suban Abdulla
LONDON, March 31 (Reuters) - British house prices rose by more than expected this month, data showed on Tuesday, but the housing market is likely to slow as an increase in borrowing costs, triggered by the Iran war, impacts affordability.
House prices were 0.9% higher month-on-month in March, the biggest rise since December 2024, mortgage lender Nationwide said on Tuesday.
March's rise was much stronger than the 0.1% fall forecast in a Reuters poll of economists, and compared with a monthly
increase of 0.3% in February.
Compared to a year ago, prices were up 2.2%, the highest since last October and well above February's 1.0% rise.
"The pickup in house price growth suggests that the market had regained momentum after the slowdown recorded around the turn of the year," Robert Gardner, Nationwide's chief economist, said.
"However, the sharp rise in global energy prices in response to developments in the Middle East represents a significant shock to the global economy, clouding the outlook."
HIGHER MORTGAGE RATES LIKELY TO SUPPRESS HOUSE PRICE GROWTH
Nationwide's data chimed with Bank of England figures published on Monday which showed lenders approved more mortgages than expected in February. But it contrasted with other recent signs of caution in the housing market as the Iran war weighs on buyer demand.
The Middle East conflict has pushed up energy prices and borrowing costs for home-buyers.
While finance minister Rachel Reeves has said it is too soon to see the impact of the war, she has indicated the government is considering targeted support for households.
Ashley Webb, UK economist at Capital Economics, said the jump in mortgage rates and weak economic growth suggests house price were likely to rise less this year than by the 3.5% increase which Capital had previously forecast.
Webb said a 1.0% rise or stagnation now looked more likely.
Financial markets see a more than 50-50 chance of the Bank of England raising interest rates by 25 basis points to 4% next month and investors were pricing in two or possibly three quarter-point increases in borrowing costs during 2026.
But most economists polled by Reuters last week said they expected the central bank to leave rates unchanged this year as weak growth offsets the inflation risks.
The conflict also poses a challenge for Prime Minister Keir Starmer's plan to speed up the building of new homes.
Figures from S&P Global have shown the longest run of decline in Britain's construction industry, with February's PMI showing a sharp downturn in house-building.
(Reporting by Suban Abdulla; editing by Sarah Young and Paul Sandle)
