The Iran War is Slowing Down the UK Housing Market
- The war in Iran will slow down the housing market in the Spring.
- Major lenders, including HSBC, Coventry Building Society, and Santander, have raised mortgage rates and withdrawn cheaper mortgage deals.
- House prices across England & Wales rose YOY by 2% to £286,768.
- The base rate will not drop now and could go up.
- 30,880 completed new builds in Q3 of 2025; it needs to be 75,000 to hit the Government pledge.
- Labour needs to deliver 100,870 new properties per quarter, or it faces failing to deliver its 1.5 million new-build pledge.
We extend our deepest sympathies to those affected by war overseas and those impacted here in the UK. If you are concerned about loved ones in Iran, they can seek emergency help from the British Government. If you would like support in coping with stress, there are resources available from the NHS.
February started with optimism and the likelihood of a Spring bounce-back. It ends with the war in Iran, which is expected to slow market confidence with a cautious approach.
We are already seeing mortgage lenders pull the previous 2-Year Fixed deals at circa 3.5% and replace them with higher rates. The likelihood that the Bank of England would drop rates at the upcoming meeting was very high before the war broke out; however, it is now likely that the base rate may need to go up.
There is a lot to learn from the Ukraine War and how it impacted the UK housing market. While this report will pick up on the market's positive position up until the end of February, the rest of Spring and the start of Summer will see declines.
How did the Ukraine war affect the UK housing market?
The Mortgage Market and Interest Rates
The most immediate and significant impact was on affordability. The war triggered a global surge in energy and commodity prices, sending UK inflation to a 40-year high.
- Bank of England Response: To combat the spike in inflation, the Bank of England aggressively raised the base rate from 0.5% in early 2022 to a peak of 5.25% by August 2023.
- Mortgage Costs: This led to an "instantaneous" shift in mortgage pricing. Average 2-year fixed rates, which had been below 2% before the conflict, surged above 6% at the height of volatility.
- Market Slowdown: Consequently, house price growth, which had been rampant during the pandemic, slowed significantly. By late 2023 and 2024, the market entered a "slump," with transactions dropping as buyers could no longer afford the monthly mortgage repayments.
Construction Costs and Housing Supply
Ukraine and Russia were major exporters of raw materials and energy, both of which are critical to the UK's housebuilding industry. The cost of energy-intensive materials like steel, bricks, and glass rose by approximately 20% shortly after the invasion. British Steel, for example, implemented immediate price hikes of £250 per tonne due to escalating energy costs. Rising building costs combined with higher interest rates led to a sharp contraction in housebuilding. By late 2025, commercial and residential construction fell to their lowest levels in over a decade, complicating the government’s targets for new housing delivery.
How will the Iran war affect the UK housing market?
The war in Iran, which escalated following US-Israeli strikes on the 28th February 2026, has introduced a significant "geopolitical shock" to the UK housing market. While the conflict is in its early stages, it has already reversed several positive trends that were expected to drive a market recovery this spring.
Mortgage Rates and Borrowing Costs
The conflict has caused an immediate spike in swap rates (the rates at which banks lend to each other), which directly dictate the pricing of fixed-rate mortgages to home buyers/owners.
- Sudden Repricing: Major lenders, including HSBC, Coventry Building Society, and Santander, have already begun raising mortgage rates or withdrawing cheaper deals from the market.
- Swap Rate Volatility: Two-year swap rates jumped from 3.33% to 3.59% in the five days following the initial strikes. This has "poured cold water" on hopes for cheaper borrowing costs in the short term.
- Base Rate Uncertainty: Before the conflict, markets were pricing in an 86% chance of a Bank of England base rate cut on 19th March 2026. This has now plummeted to roughly 27%, as the Bank may need to keep rates higher to combat energy-driven inflation.
Energy Prices and Household Affordability
Because the UK remains heavily dependent on gas for heating and electricity, the threat to shipping in the Strait of Hormuz (through which 20% of global oil and LNG passes) has a direct line to UK wallets.
- Utility Bill Forecasts: Analysts at Cornwall Insight have warned that household energy bills could rise by as much as £160 a year starting in July 2026 if wholesale gas prices remain at their current three-year highs.
- Inflation Pressure: The jump in Brent crude to over $80 a barrel is expected to add roughly 0.2 to 0.5 percentage points to UK inflation this year. This "cost of living" pressure reduces households' disposable income for mortgage repayments, further cooling housing demand.
Construction and Housing Supply
Housebuilding targets, which the government recently finalised in the Spring Statement, are now under threat due to rising input costs. Experts from the Building Cost Information Service (BCIS) warn that prolonged unrest will drive up the cost of transport and energy-intensive materials (steel, concrete, and bricks). The increased cost will keep down the supply of new housing stock and thus slow the housing market.
In Summary
I predict the markets will slow as fewer affordable mortgages are available, and with fewer new properties to buy, the optimistic growth we saw in January and February will be dampened.
There could be a surge in UK nationals returning to England as they seek to reduce the risk of exposure to future wars. As of early 2026, approximately 240,000 to 250,000 UK nationals live in the United Arab Emirates. However, many of these may choose to leave the region temporarily or permanently, which could create demand for UK property.
UK house prices rise faster in February
The Nationwide Building Society Price Index reports that house prices rose slightly faster than expected in February. The average UK house price last month was £273,176, up 0.3 per cent from January.
Source: Amanda Bryden, head of mortgages at Halifax
Will mortgage rates go down in 2026?
On the 27th February, I'd have predicted a base rate cut to 3.5%; inflation at 3%; UK job vacancies at the lowest level since 2021; and the Bank of England (BoE) Governor Andrew Bailey commenting that "an interest rate cut in March was a possibility"; all of which suggests a need for the cut.
Since the 28th of February, this outcome is unlikely. The jump in Brent crude to over $85 a barrel is expected to add roughly 0.2 to 0.5 percentage points to UK inflation this year. This "cost of living" pressure reduces households' disposable income for mortgage repayments, further cooling housing demand.
I now expect the base rate to remain at 3.75% at the March meeting and may rise in the April meeting to curb inflation. Given the short time between the two meetings, this approach is prudent and avoids a knee-jerk reaction.
The upcoming MPC announcements on Bank Rates are on the 19th March, 30th April, 18th June, 30th July, 17th September, 5th November, and 17th December.
Property sales volume is half what it was a decade ago
England & Wales
Sales volume was down 35% year on year, which sounds better than the record fall of -64% in 2008. However, this is compounding several years of broadly falling sales volume. When we look back beyond COVID, sales volume is down by almost half (48%) versus September 2015, despite the country having built almost 1.5 million more homes since then.
Growing confidence since the anti-climactic autumn budget and steadily falling mortgage rates should get the wheels in motion again, as we expect Land Registry data to confirm, once released. However, this uplift may be over almost before it's started, as the war is likely to destabilise inflation and the base rate.
Despite the budget-subdued market and seasonal decline, average house prices have grown 1.8% higher than the previous year, driven by first-time buyers, and stand just 0.5% below their record high of £288,218 back in August last year (latest HPI data to December 2025).
- The average price for first-time buyers is now £240,775, a 2.0% annual rise.
- Owner-occupiers paid an average of £347,905 (up 1.6% year-on-year).
- Cash buyers averaged £272,779 (up 1.1% year-on-year).
London
London continues to face challenges. The average property price is now £551,294 (November 2025), a 1.0% YoY decrease. House prices in London have been lower than last year for five consecutive months.
Completed property sales in London were just 4,572 in October, a 49% fall YoY and a 58% fall versus a decade earlier. This is the largest shortfall since the Stamp Duty bottleneck caused sales volume to crash in April.
Mortgage approval reports
Home buyers
House Purchase Mortgage Approvals in January 2026 fell by 10% compared with the previous year. With only 59,999 mortgage approvals, homeowners were slow to get started in 2026. I expect stronger numbers from February, once released, when buyers jumped on the opportunity to secure the greater availability of mortgage products. March is already slower in comparison, following the start of the war in Iran.
Until there is more stability around oil flow in the Middle East, the housing market and mortgage lenders will be cautious, and caution doesn't mean growth.
Remortgages
Remortgage Approvals reached 38,103 in January 2026, up 14% on last year and the highest number of approvals since 2022 post-COVID. The base rate fall and the volume of available mortgage products are making it easier for homeowners to secure a new mortgage deal. The February data will reflect similar growth, but it will slow in March as the impact of fewer mortgage products hits the market.
Lowest new build completions since lockdown
Housing completions have fallen year on year for the 5th quarter in a row, and the 10th of the past 11. There were 30,880 completed new builds in Q3 of 2025; 9% lower than the previous year. The Government's building pledge would require more than double this number of quarterly completions.
To achieve the 1.5 million pledge, Labour needed to deliver 75,000 completed homes a quarter. Since Labour has been in Government (July 2024), they have delivered 338,680 new properties in 9 quarters. To achieve their pledge they needed to have built 675,000 properties. This is a gap of 336,320, and when added to the balance of the pledge, Labour needs to deliver 100,870 to meet their new build pledge.
Andrew Boast FMAAT
CEO of SAM Conveyancing
The war in Iran will significantly affect the housing market's growth this year. The Bank of England base rate will need to change to counter the inflation increase that I predict is coming.
Labour will have an out for not meeting their new property target of 1.5 million new homes in 5 years, as rising material costs will slow the completion of plots. The target should be 75,000 completions, but even before the war, it was less than half of this.
In a year where the market wanted to be left alone, the Iran war will dictate a slow growth until there is a stability to the supply lines for oil..
Sources: Latest data from - Gov.UK, Bank of England, UK House Price Index, ONS and Propertymark (NAEA).
Without Killing Anyone
This book could be the difference between every mover’s dream, buying and moving into your new home stress free, or, stress, missed deadlines, legal disasters, building defects, and possibly the collapse of the whole transaction. (Costing you a small fortune, a head full of grey hairs, and, driving you to threaten the life of your solicitor, lender, co-owners, family, partner, or some combination of all five).
With more than two decades’ experience in the conveyancing sector and over 50,000 successful client moves under his belt, Andrew shares insider tips and advice to empower you as a buyer, giving you the tools to make the best decisions for your circumstances and ease the chaos.
Available on Amazon | Kindle | Paperback
