UK house prices flat in June but outlook brightens, Nationwide says

LONDON, July 1 (Reuters) - British annual house prices rose by less than expected in June, but softening expectations for interest rate hikes by the Bank of England are likely to improve affordability, mortgage lender Nationwide said on Wednesday.

House prices rose by an annual 2.2% in June, below a 2.4% rise forecast in a Reuters poll of economists. Prices were flat month-on-month, as expected, after a surprise 0.6% fall in May.

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 pushing up expectations the BoE would need to hike 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.

"If the energy shock continues to subside, the Bank of England may not need to raise interest rates, or at least by less than had previously been anticipated."

The Bank of England said on Monday the number of mortgages approved by British lenders for house purchase 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.

"If maintained, these trends will help to restore household confidence and ease affordability constraints, paving the way for a recovery in housing market activity in the coming quarters, providing that domestic political uncertainty does not adversely impact sentiment," Gardner added.

Prime Minister Keir Starmer, who said last week he would resign, has sought to speed up the construction of new homes, but a shortage of properties for sale is likely to keep upward pressure on prices.

Andy Burnham, Britain's likely next prime minister to replace Starmer, on Monday pledged to oversee the biggest local authority-led social house-building programme since the years following World War Two.

(Reporting by Suban Abdulla; editing by Sarah Young and Andrew Heavens)