Annual house price growth picked up in March – but it’s widely regarded as the calm before the storm.

UK annual house price growth picked up to 2.2% in March, from 1.0% in February, says the Nationwide.

Prices increased by 0.9% month on month, after taking account of seasonal effects.

But Robert Gardner, chief economist at Nationwide, warns: “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.

“In the near term, UK economic growth is likely to be slower and inflation higher than previously expected, although ultimately the impact will depend on the duration of the shock as well as the policy response. 

“The outlook for interest rates is particularly uncertain and dependent on whether the demand or supply side of the economy is more adversely affected.”

Gardner says that financial market expectations for the future path of Bank Rate have shifted dramatically. 

“Towards the end of March, three interest rate increases were priced in over the next twelve months, compared to two rate cuts being anticipated before the strikes on Iran. 

“This shift has resulted in a sharp rise in longer term interest rates (swap rates) that underpin fixed rate mortgage pricing. 

“If sustained, this could reverse some of the improvement in housing affordability that has taken place in recent years.

“With consumer sentiment also likely to be dented by the uncertain outlook and the prospect of rising energy costs, housing market activity is likely to soften.”

Responding to the figures, Jeremy Leaf – north London estate agent and a former RICS residential chairman – says:“Although always a very useful snapshot of house prices from the UK’s largest building society, the data here mostly covers the period before Middle East hostilities emerged.

“In the month or so immediately proceeding, activity had been warming up quite promisingly. 

“Now that the conflict has continued for longer than originally anticipated, some doubts are starting to creep in over mortgage costs and inflation in particular.

“However, the overwhelming majority of previously-agreed sales are continuing but new business is taking longer to negotiate.”

And Tom Bill, head of UK residential research at Knight Frank, agrees. He says: “The impact from the Middle East conflict on the housing market is still in the post. 

“The fact mortgage offers last for six months means the effect of higher borrowing costs will filter into the market this spring and summer, putting downwards pressure on prices and transaction volumes. 

“The longer-term impact hinges on the intensity and length of the conflict. That said, one mitigating factor is the amount of equity in the system and the fact more homes are now owned outright than with a mortgage.”