London, United Kingdom. British annual house prices rose by less than expected in June, according to mortgage lender Nationwide, while easing expectations for Bank of England interest rate hikes are likely to improve affordability.
House prices rose by 2.2% year-on-year in June, below the 2.4% increase forecast in a Reuters poll of economists. Prices were unchanged on a monthly basis, in line with expectations, after a surprise 0.6% fall in May.
Housing market slows
Mortgage costs have risen since the start of the Iran war at the end of February, tempering a strong start to 2026 for house price growth and increasing expectations that the Bank of England would need to raise interest rates to curb inflation.
“It is not surprising that the market has softened a little in recent months, given the uncertainty caused by developments in the Middle East and the subsequent rise in energy prices and market interest rates,” Robert Gardner, Nationwide’s chief economist, said.
Rate outlook
Gardner said that if the energy shock continues to subside, the Bank of England may not need to raise interest rates, or may increase them by less than previously anticipated.
The Bank of England has said the number of mortgages approved by British lenders for house purchases fell by the most since December 2023 in May.
The central bank kept interest rates at 3.75% in June, and investors are pricing in the first quarter-point increase in the main Bank Rate in early 2027.
Affordability and confidence
Gardner said that if these trends are maintained, they will help restore household confidence and ease affordability constraints, paving the way for a recovery in housing market activity in the coming quarters, provided domestic political uncertainty does not adversely affect sentiment.
