The forecast depends on the duration of the current energy crisis
Nationwide is the world’s largest building society(Image: Mike Kemp, In Pictures via Getty Images)
Nationwide’s chief economist has issued an upbeat message to UK households as he discussed the current financial climate.
Recent data shows house price growth accelerated to 3.0% in April, up from 2.2% in March, while prices climbed 0.4% month on month. The typical property now stands at £278,880. This robustness persists despite upheaval from Middle East tensions, including the Iran conflict, which has shaken confidence and driven up energy costs. Robert Gardner acknowledged the market’s strength has caught many off guard.
He said: “It is a surprise because we have seen consumer confidence weaken, as you’d expect, given what’s happened in the Middle East and what’s happened to energy prices… and yet we’ve seen the market remain relatively resilient.”
Research indicates buyer demand has softened and sentiment has fallen, yet prices have kept rising – pointing to underlying factors at work. According to Mr Gardner, the crucial element is the strengthening state of household finances.
He told BBC Radio 4 Today: “We’ve got debt levels at their lowest for about two decades. We know real incomes have made up all the ground that was lost during the cost of living crisis.”
This blend of reduced debt and growing incomes has helped protect homeowners and purchasers from economic turbulence.
Significantly, affordability has also enhanced. Wage growth has outstripped house price increases by a “significant margin”, while mortgage rates have retreated from their 2023 peaks. Although borrowing costs have edged up slightly in recent weeks, Mr Gardner emphasised they remain well below the highs recorded two years ago and broadly consistent with 2024 levels.
He said: “Even though affordability has deteriorated a little bit compared to where we were a few months ago, it’s still looking fairly comfortable.”
The outlook, however, depends on how long the current energy crisis endures. Mr Gardner cautioned that economic growth could slow and inflation climb if elevated oil and gas prices continue, but noted there are reasons to be hopeful. He said: “The housing market has been pretty resilient to shock so far, so hopefully that’s what we’ll see.”
The data suggests that, for now at least, Britain’s homeowners are riding out the storm – bolstered by stronger finances and growing incomes, even as global uncertainty hangs over the horizon.
Looking ahead, he said: “UK economic growth is likely to be somewhat weaker and inflation higher than previously expected as a result of developments in the Middle East, although the ultimate impact will depend critically on the duration of the shock and the policy response.
“However, the UK economy and housing market have proved remarkably resilient in recent years. This provides some confidence that, if the latest shock passes relatively quickly, and energy prices normalise in the quarters ahead, any near-term softening in the housing market will also prove short lived.”