UK House Prices Fall as Iran Conflict Pushes Mortgage Rates Higher

UK house prices fell 0.6% in May 2026, the first monthly decline of the year bringing the average property value to £278,024. Annual growth slowed from 3% in April to 1.7% in May.

The cause is a sharp rise in mortgage rates since the Iran conflict began in late February, which has weakened buyer demand and changed the outlook for the UK property market this year.

What has happened to UK mortgage rates since the Iran conflict?

Before the conflict began, the Bank of England had been expected to cut its base rate during 2026. That expectation shifted quickly as energy prices rose and inflation forecasts climbed. The Bank held its base rate at 3.75% in April, a decision the Monetary Policy Committee (MCP) voted 8-1 in favour of, with one member voting to increase rates to 4%. The MPC signalled that higher inflation is likely ahead and that rate rises remain possible this year.

Fixed mortgage rates moved materially in the meantime. The average two-year fixed rate reached 5.68% and the five-year fixed rate 5.63% by 1 June 2026, according to Moneyfacts. The two-year rate stood at 4.83% before the Iran conflict began  a rise of 85 basis points in under three months.

For context, swap rates which underpin fixed-rate mortgage pricing remain well below their 2023 highs and broadly in line with 2024 levels. The affordability impact has been real but not at the extreme end of recent experience. If energy prices normalise in the coming quarters, the near-term softening in the market may prove short-lived.

What do falling house prices mean for CGT if you are selling a property?

Falling prices reduce the gain on paper. They do not reduce the urgency of understanding what that gain is before contracts are exchanged.

Capital Gains (CGT) on residential property is calculated on the difference between the sale price and the original acquisition cost, less allowable expenses. A lower sale price means a lower liability, but the liability is still due within 60 days of completion for residential property. That deadline does not move with the market. The CGT position should be modelled before a sale price is agreed, not after. If the position has not been reviewed recently, now is the time to do it. A falling market changes the figures.

For non-resident landlords, NRCGT applies on the same 60-day filing timeline. A nil liability does not remove the obligation to file. Sterling has moved materially since the conflict began. The net proceeds in the landlord's home currency may look different from the headline sale price, and that difference is worth understanding before exchange rather than after completion.

Does a lower sale price reduce your SDLT liability?

Lower transaction prices can shift a purchase across Stamp Duty Land Tax (SDLT) band boundaries. Whether that matter depends on the buyer's specific position such as first-time buyer status, whether additional dwellings are held, and whether any overseas property interests exist.

For buyers who agreed a price earlier in 2026 and have not yet exchanged, the shift in market conditions may support renegotiation. SDLT is calculated on the price paid at completion. A lower agreed price is a lower SDLT liability.

Buyers with overseas property interests, shared ownership complications, or a previous dwelling still on their balance sheet face SDLT analysis that does not simplify in a falling market. The rate applicable depends on the facts at the point of exchange, not the point of original agreement.

What does the house price fall mean for portfolio landlords and company structures?

For landlords who restructured into a company or carried out an intragroup transfer in the last three years, the SDLT group relief clawback period under FA 2003 Sch 7 remains live. A fall in property values does not reduce that exposure.

For heavily leveraged landlords, the more immediate pressure is higher financing costs against static or compressed rental income. The tax position on disposal, restructuring, or remortgage is a separate question from the commercial one but both are worth reviewing together rather than in isolation.

Conclusion

House prices are falling and mortgage rates have risen sharply since February. For landlords and property investors, the market shift is the context while the tax position is the substance. Disposal timing, acquisition structuring, and financing decisions each carry specific CGT, SDLT, and income tax implications that do not simplify because the market is moving. If any of those decisions are live, the tax position should be reviewed before the commercial one is settled.