UK House Prices May Suffer Due to the Iran War

Up until last week, it was looking like 2026 would be a good year for the UK housing market. Mortgage rates had begun to stabilise, and expectations were growing that the Bank of England would soon announce further interest rate cuts to support economic growth.

However, the ongoing Iran war has made all of that uncertain. According to a recent survey by the Royal Institution of Chartered Surveyors (RICS), geopolitical risks and rising energy prices are weakening buyer confidence and clouding the near-term outlook for UK house prices.

Iran War Seems to be Dampening Buyer Demand

The latest RICS survey reveals that buyer interest in the UK housing market has weakened sharply in the wake of recent geopolitical events.

The new buyer enquiries index fell to –26 in February, down from –15 in January. Importantly, this survey period largely covered the days following the outbreak of the Iran war on 28 February, meaning this decline reflects market sentiment immediately after the conflict began.

Estate agents have also corroborated this data, saying that while they had started February with a flurry of enquiries, they ended it with “almost nothing.”

Periods of uncertainty like this often lead prospective buyers to delay major financial commitments like purchasing property until the economic outlook becomes clearer.

Iran War Can Affect Mortgages

Sounds far-fetched, but it’s true. But to understand this, we need to first understand the impact the war is having on energy prices.

The situation in the Middle East has pushed oil and gas prices higher. This, in turn, could push up inflation. Higher inflation means the Bank of England could delay interest rate cuts or even raise interest rates to keep prices under control.

For the UK housing market, this could result in mortgage rates remaining higher for longer.

RICS also notes that the surge in energy costs has reinforced market expectations that borrowing costs will stay elevated. Some lenders have already begun adjusting mortgage products and increasing rates in response to rising funding costs and market volatility.

Are UK House Prices About to Fall Soon?

The RICS survey suggests that property professionals are becoming increasingly cautious about the short-term outlook for the UK housing market.

RICS’ index of forecasted prices over the next three months fell to –18 in February from –6 in January. This suggests that more estate agents expect prices to fall rather than rise in the next three months.

At the same time, the near-term sales expectations index fell to –2. This is the lowest it has been since last November. This shows that surveyors anticipate slightly fewer property sales in the coming months, signalling a potential slowdown in market activity.

But agents remain cautiously optimistic for the longer term. Their year-ahead sales expectations are still positive at +17, though this is down sharply from +35 in January. In other words, while short-term activity may dip, most professionals still expect overall sales to increase over the next 12 months.

Overall, the survey points to a period of temporary stagnation or slower price growth, rather than a dramatic collapse, as the market adjusts to higher costs and geopolitical uncertainty.

What is the Outlook for Rental Demand?

The RICS survey shows that tenant demand has remained broadly stable over the past three months, even as uncertainty grows in the housing sales market.

At the same time, the number of new landlord instructions remains deeply negative, meaning fewer landlords are putting properties up for rent. This imbalance between steady tenant demand and limited new supply could keep upward pressure on rents, even if property sales slow.

For landlords, this highlights a continuing trend:

• Rental demand still outstrips supply in many areas
• The shortage of rental properties remains a structural issue, supporting rental yields for those who already own investment properties

In short, while the sales market may face short-term challenges, the rental market is holding firm, making it a key opportunity for property investors.

Conclusion

The UK property market has shown remarkable resilience in recent years, weathering everything from the pandemic to inflation. Today, geopolitical tensions and higher energy costs may slow short-term activity, but the long-term drivers of housing demand, i.e., population growth, a chronic shortage of homes, and the enduring appeal of property as a long-term investment, remain firmly in place.

While the months ahead are likely to bring cautious rather than rapid growth, these fundamentals continue to support opportunities for property investors.