UK house prices increased at the fastest rate in almost 18 months in March, although surging mortgage rates amid the Iran war is likely to lead to a slowdown in the market, according to Nationwide.

The UK’s biggest building society said the price of a typical UK home increased by 0.9% month-on-month in March, the largest increase since December 2024.

The increase, which compares with a 0.3% rise recorded in February and is ahead of economists’ expectations of 0.6% growth, means the average price of a UK home stands at £277,186. Annual house price growth picked up to 2.2% in March, from 1% in February.

However, Nationwide warned that the US-Israeli war on Iran has “clouded the outlook”, with financial markets expecting the Bank of England’s monetary policy committee to raise the base rate three times over the next 12 months from 3.75%.

Prior to the start of the conflict in the Middle East, analysts were expecting two rate cuts this year.

“This shift has resulted in a sharp rise in longer term interest rates (swap rates) that underpin fixed-rate mortgage pricing,” said Robert Gardner, chief economist at Nationwide. “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.”

Average mortgage rates have risen above 5% in recent weeks as lenders have pulled hundreds of deals in the biggest upheaval since the aftermath of the 2022 mini-budget.

On Monday, the average two-year fixed-rate mortgage hit 5.77%, up from 4.83% at the start of March and the highest level since August 2024, according to Moneyfacts.

A five-year fixed-rate mortgage has risen from 4.95% at the start of the month to 5.7%, the highest level since November 2023.

Karen Noye, mortgage expert at Quilter, said: “Expectations of easing borrowing costs and gradually improving affordability had been supporting activity at the start of the year, but any real progress has been rapidly undone in the last month.

“Since the start of the conflict, mortgage rates have risen sharply and lenders have been withdrawing products or repricing fixed-rate deals at short notice. For prospective homebuyers and movers, this has meant a rapid deterioration in affordability.”