Rising Oil and Energy Costs Dash Housing Market Hopes
- The war in Iran has curbed spending power as mortgage rates adjust in anticipation of energy-cost inflation.
- Mortgage lenders have pulled circa 1,500 mortgage products since the start of the Iran War.
- House prices across England & Wales rose YOY by 1.2% to £285,111.
- Zoopla reported that Home buyer demand weakened in March.
- I predict the base rate will increase to 4% in April.
- 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.
Whilst the United Kingdom refrained from actively entering the war in Iran, the UK housing market is unavoidably affected. Confidence and stability are needed in mortgage lending, and neither is in sight in the foreseeable future, as inflation is unavoidably set to rise due to ever increasing oil prices and, with it, the Bank of England base rate.
Mortgage lenders weren't slow in defensive action at the start of the Iran War. Money Facts reports that between the 9th March and late March 2026, lenders pulled approximately 1,500 mortgage products from the market. This represents a nearly 20% reduction in mortgage choices for borrowers in just three weeks.
Mortgage Product Availability (2026)
Period | Total Mortgage Products | Change |
PeriodTotal Mortgage ProductsChangeEarly January 2026 (Pre-Conflict) | 7,158 | 18-year market high |
Start of March 2026 (Start of Conflict) | Circa 7,460 | Peak availability |
Late March 2026 (Post-Conflict) | 6,016 | Down 1,444 mortgage products |
Source: Money Facts
Mortgage lenders aren't stupid, though; fewer mortgage products are bad for business, so they are cautiously re-entering the market after the initial shock. However, gone are the low rates close to 3%. The average two-year fixed rate has jumped from 4.83% at the start of March to 5.77% by the end of the month. For the first time in over a year, two-year rates have overtaken five-year rates, signalling an inverted market where short-term uncertainty is priced higher.
How the Government reacts to this is critical. I avoid political views and focus on what is best for the housing market. I do feel that the messaging we are seeing will offer some reassurance to mortgage lenders.
"I do have to level with people, this will not be easy...once again, to go through a crisis, come out of it, and say 'business as usual, back to the status quo" in reference to the measures the government has previously announced to address living costs, including capping energy bills and having fuel duty cuts in place until September.
Source: Sir Kier Starmer
Whether we see the confidence and stability to keep mortgage lenders happily offering competitive products is unclear, which isn't good for the 1.6 million homeowners coming to market this year whose fixed-rate deals expire by the end of 2026. The sudden decrease in products and increase in rates translates into significantly higher monthly repayments than anticipated at the start of the year.
What is going to help homeowners and first-time buyers is the new relaxed affordability checks and higher salary multiples we reported in our January 2026 Report. While it doesn't protect for the higher interest rate on the mortgage, it will make getting a mortgage easier. And whilst I can't give financial advice, taking out a shorter-term mortgage when rates are spiked like this means you can remortgage in 2 years once the markets have adjusted back down.
You can read more on How will the Iran war affect the UK housing market? from my February 2026 Report.
Home buyer demand weakened in March
Zoopla reported that Home buyer demand weakened in March as rising mortgage rates and global uncertainty linked to the Middle East conflict dampened confidence. Their data showed that agreed sales had fallen by 2% year on year, with the market being supported by those who already have mortgages agreed. The number of people actively looking to move homes was 13 per cent lower than this point last year, with first-time buyers and next-steppers pausing their plans.
...higher mortgage rates are making buyers more cautious.
Source: Richard Donnell, Executive Director at Zoopla
Will mortgage rates go down in 2026?
As we predicted in our February 2026 Report, the Bank of England held interest rates at 3.75% in their March meeting. This was even on the back of the announced fall of inflation to 3%. Had the Iran War not broken out, a base rate cut would have been needed.
Now, even though there is uncertainty in the mortgage market, and there is talk that inflation will go up, there are some who do not feel that increasing the base rate is the answer. Bank of England policymaker Alan Taylor said that he saw a high bar to increasing interest rates, and it was preferable to maintain rates until there was greater clarity as to the impact of the war in Iran on the economy.
Quite what this looks like is unclear, but the longer the war goes on, and there is disruption to the oil flow to the UK, we will see financial counter-measures to combat increasing inflation. The Bank of England’s Financial Policy Committee (FPC) have said the conflict in the Middle East will “weigh on growth, increase inflation and tighten financial conditions”, and could push 5.2 million borrowers onto higher mortgage repayments by the final quarter of 2028.
I expect that even though Andrew Bailey is saying that financial markets are “getting ahead of themselves” by pricing in interest-rate rises, I feel the base rate will go up to 4% in April. There could be further increases in June at the end of the energy price cap.
The upcoming MPC announcements on Bank Rates are on the 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 by 39% on a year-on-year basis: the steepest drop since April, which was caused by the stamp duty threshold changes. Sales activity is down by 45% over the past 10 years, despite the construction of almost 1.5 million more homes in the country since then.
The market was beginning to warm up this spring, but movers and buyers are now hesitating in anticipation of higher living and borrowing costs, due to international turmoil.
Property price growth below inflation
Before the war reached Iran, average house prices grew 1.2% in the year to January, driven by first-time buyers, and stand 1.2% below their record high of £288,575 back in August last year. This places property price growth below inflation (3% in the same month) since March last year, when growth was driven up by the Stamp Duty deadline.
- The average price for first-time buyers is now £239,095, a 1.3% annual rise.
- Owner-occupiers paid an average of £346,391 (up 1.0% year-on-year).
- Cash buyers averaged £271,677 (up 0.8% year-on-year).
London
London continues to face challenges. The average property price is now £554,422 (January 2026), a 1.6% YoY decrease. House prices in London have been lower year-on-year for six consecutive months.
Completed property sales in London were just 4,092 in November, a 47% fall YoY and a 58% fall versus a decade earlier.
Mortgage approval reports
Home buyers
House Purchase Mortgage Approvals in February 2026 fell by 4% compared with the previous year. With 62,584 mortgage approvals, home buyers were slow to get started in 2026, although it was 4% up on January.
It is clear that once the data is available from the Bank of England for March, we will see a dramatic fall in mortgage approvals caused by uncertainty with the Iran war, and the pulling of circa 1,500 mortgage products.
Remortgages
Remortgage Approvals reached 41,150 in February 2026, up 28% on last year and the highest number of approvals since 2022 post-COVID. The base rate fall, and the volume of available mortgage products made it easier for homeowners to secure a new mortgage deal. As with home buyers, the March data will show a slowing in remortgage approvals.
Lowest new build completions since lockdown
Housing completions fell year on year for 5 quarters in a row, until Q4 of 2025, which showed a small 2% increase to 41,570 completed new builds. The Government's building pledge would require close to twice 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 216,020 new properties in 6 quarters. To achieve their pledge, they needed to have built 450,000 properties by now. This is a shortfall of 233,980 so far.
Andrew Boast FMAAT
CEO of SAM Conveyancing
We are in the lull before the major impact of the Iran war hits the UK housing market. Inflation is currently at 3%, but is likely to spike when April data is released.
How long this will last is unclear; however, mortgage lenders will still look to keep the mortgage market moving. The question is: will the mortgage products be affordable for the 1.5 million homeowners looking to remortgage as they exit their fixed terms?
I expect the Bank of England will be forced to increase the base rate to 4% in April to combat inflation, and I don't believe that will be the only interest rate increase.
Sources: Latest data from - Gov.UK, Bank of England, UK House Price Index, ONS and Propertymark (NAEA).
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