Source: Sharecast
According to the latest Nationwide house price index, annual growth slowed to 1.7% from 3% in April, while month-on-month, prices fell 0.6%. In April, house prices rose 0.4%. The average house price now stands at £278,024.
Analysts had been expecting prices to soften in May but by a more modest 0.1%.
The outbreak of war in the Middle East has sent global energy prices soaring, reigniting inflation fears and weighing on interest rate expectations. The Bank of England had been expected to cut interest rates this year, but has now left the cost of borrowing unchanged in response to the crisis and said it stands ready to tackle inflation if needed.
Consumer confidence has also weakened.
The UK economy grew by 0.6% in the first quarter, according to the latest data from the Office for National Statistics, while inflation eased to 2.8%. But economists generally agree conditions are set to worsen as the war drags on.
Robert Gardner, Nationwide’s chief economist, said: "Given the uncertainty caused by developments in the Middle East and the subsequent rise in energy prices and market rates, some loss of momentum was to be expected.
"Indeed, consumer confidence has weakened noticeably since the start of the conflict.
"The UK economy entered this shock on a slightly stronger footing than expected. Nevertheless, economic growth is likely to be somewhat weaker and inflation higher than previously expected this year as a result of developments in the Middle East."
However, Gardner noted that the UK housing market had proved "remarkably resilient" in recent years, supported by solid household finances, while housing affordability has improved.
"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."