Before the news that Russia had mounted an invasion of Ukraine, it seemed like almost nothing could stop the meteoric rise of UK house prices.

At first, the ever-increasing prices looked like an unintended consequence from the stamp duty holiday.

The holiday was designed to ensure the housing market kept motoring during the dark days of the pandemic and it certainly fulfilled its task — arguably, too well.

Consumers will think twice about the expensive process of moving

However, months after the holiday was rescinded, prices continue to soar. Lockdown savings, new working habits and a continued proliferation of cheap mortgage deals have all played their part in enticing buyers to the market.

Cat and mouse

Just recently, Nationwide house-price figures showed there was another month-on-month rise, of 1.7%. Prices now stand, on average, an incredible £29,000 higher than they were a year ago.

For first-time buyers these increases represent a game of cat and mouse, where prospective buyers just manage to save enough for a deposit before the cost of their first home climbs slightly out of reach again.

The prospect of rising inflation and increasing interest rates will take the wind out of the sails of the market

However, the war in Ukraine may put the brakes on this surge in prices. The economic impact of the invasion will be felt by all, and at an already fiscally difficult time.

It was well reported that energy prices were rising steeply prior to the conflict but, with Europe now looking to find alternative natural gas sources outside Russia, costs are likely to go even higher. Add to that inflation is eating away at people’s spending power and you have a situation where almost everyone will start to tighten the purse strings.

This squeeze on  everyday finances will naturally make consumers think twice before embarking on the expensive process of moving, with the risk of becoming less financially stable at a very uncertain time.

The economic impact of the invasion will be felt by all, and at an already fiscally difficult time

How house prices truly react to the Russian invasion won’t be seen for a few months, but it seems very unlikely they are robust enough to cope with the unfolding crisis, especially against the backdrop of an economy trying to recover after the pandemic.

Layer of complexity

The prospect of rising inflation and increasing interest rates will also take the wind out of the sails of the market as cheap mortgage deals will likely come off the shelves. With inflation running riot it’s likely the Bank of England will need to hike rates soon, but the war in Ukraine adds another layer of complexity, making its next move less predictable. Ultimately, the size of the rate change will dictate the severity of the slowdown in prices.

Therefore, those who have already secured a fixed-rate mortgage may well be grateful. For those looking to buy, increased rates are likely to make a house move, or the purchase of a first home, more unaffordable.

Prices are unlikely to be robust enough to cope with the unfolding crisis

However, there continues to be a dearth of housing stock in the UK and, until stock is meaningfully replenished by the government and the big housebuilders, house prices will likely plateau or drop relatively slowly because there is still too much demand and too little supply.

For over two years we have lived in uncertain times, but the housing market has proved resilient. If war rages in Europe, this may no longer be the case.

Karen Noye is mortgage expert at Quilter