Property prices across Britain fell for the first time this year after growing instability in global markets weakened buyer confidence and pushed mortgage rates higher.
Figures released by Nationwide Building Society showed average property values declined by 0.6 per cent between April and May.
The latest figures also showed annual house price growth slowed sharply to 1.7 per cent in May, compared with three per cent recorded the previous month.
An average home in Britain is now valued at £278,024, down from £278,880 in April.
The slowdown comes amid heightened geopolitical tensions and mounting pressure on financial markets following conflict in the Middle East.
Robert Gardner, chief economist at Nationwide, said: "Given the uncertainty caused by developments in the Middle East and the subsequent rise in energy prices and market interest rates, some loss of momentum was to be expected."
Mr Gardner said buyer sentiment had deteriorated significantly since hostilities began earlier this year.
He said: "Consumer confidence has weakened noticeably since the start of the conflict, with GfK's headline index falling to its lowest level since late-2023 in April, with only a marginal increase in May."
'Loss of momentum' hits UK housing market as property prices fall for first time this year
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The Royal Institution of Chartered Surveyors has also reported a noticeable decline in prospective buyers making enquiries in recent months.
Housing market confidence has weakened alongside broader concerns about the economy and household finances.
Higher borrowing costs combined with global uncertainty appear to be causing many prospective buyers to delay property purchases.
Market interest rates have risen as investors reassess the outlook for inflation and future Bank of England policy following surging energy prices linked to instability in the Middle East.
The increase in borrowing costs is also placing additional pressure on existing mortgage holders.
Research from Hamptons found more than 500,000 households reaching the end of five-year fixed mortgage deals are facing monthly repayment increases of more than £250.
Average rates on two-year fixed mortgages have climbed from 3.97 per cent before the conflict began in February to 5.02 per cent.
Homeowners refinancing five-year fixed deals in May secured average rates of 4.85 per cent, representing an increase of 2.61 percentage points compared with their previous arrangements.
Despite the current pressures, Nationwide said the wider housing market had remained relatively resilient
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The rise equates to an additional £3,012 a year in repayments, even after reduced loan balances are taken into account.
Aneisha Beveridge, head of research at Hamptons, said: "These households secured their deals when rates were pretty much at record lows, and many have had time to prepare for higher repayments."
She added: "That said, the pace of rate rises, particularly in recent months, will still catch some off guard."
Britain’s economy expanded by 0.6 per cent during the first quarter of the year, while inflation fell by more than expected in April.
Mr Gardner said: "The UK economy and housing market have proved remarkably resilient in recent years.
"Household finances are solid, with total household debt at its lowest level relative to income for around two decades, and sizeable savings buffers have been built up, though these are not evenly distributed across households."
Mr Gardner also pointed to improving affordability conditions before the recent market turbulence, helped by wage growth outpacing house price increases and borrowing costs gradually easing earlier in the year.
He said any weakness in the property market could prove temporary if geopolitical tensions begin to ease and energy prices stabilise.