House prices will FALL in 2026 as war in Iran has ‘fundamentally changed’ outlook for property market
War in Iran and the subsequent increase in mortgage rates have ‘fundamentally changed’ the outlook for Britain’s housing market, Savills has warned.
In response to the war across the Middle East, Savills has downgraded its outlook for property prices this year and beyond.
Savills now expects average property prices across Britain to fall by 2 per cent in 2026. Previously, the estate agency group forecast a 2 per cent rise in prices.
House prices rose by 0.4 per cent in the year to the end of April, according to the latest figures from Halifax.
The average property price is now £299,313, compared to £297,781 this time last year.
In the longer term, Savills said it expects average property prices to rise by 18.5 per cent or £67,000 in the five-year period to 2030, downgraded from a previous forecast of 22.2 per cent.
Underpinning Savills’ revised forecasts was its claim that higher mortgage costs will reduce demand across the housing market.
Revised down: Savills now thinks house prices will rise £67,000 in the five years to 2030
‘Higher borrowing costs and weaker sentiment will weigh on demand through the remainder of 2026’, Lucian Cook, head of residential research at Savills, said.
Facing a tidal wave of regulation including the Renters’ Rights Act, a flurry of landlords are also selling up. Higher stock levels in the market look set to put ‘downward pressure’ on prices, Savills said.
The impact of higher mortgage rates, weak demand among buyers and a surplus of stock will not be felt evenly across Britain this year, Savills said.
The firm thinks London and the south east of England will face the worst property price impact, while the north of England, Scotland and Wales will outperform.
It expects the most significant pressure on property prices to come over the summer when mortgage rates are expected to be at their highest.
Houses are expected to outperform flats this year, amid continued caution from buyers around leasehold and building safety concerns, Savills added.
Cook said: ‘Despite a robust start to the year for both price growth and activity, the rise in mortgage rates since late February has downgraded the short-term outlook.’
Savills said a more protracted conflict in the Middle East could lead to a sharper rise in inflation and, in turn, interest rates.
The group said higher inflation and interest rates could result in ‘a more significant’ short‑term pressure on house prices, followed by a more pronounced ‘V‑shaped recovery.’
Nicholas Mendes, mortgage technical manager at John Charcol, told This is Money: ‘The Iran conflict would not directly move UK house prices on its own, but it can feed into the market through mortgage pricing, inflation, and buyer confidence.
‘At the start of the year, there was a reasonable expectation that mortgage rates would gradually improve through 2026. That now looks less certain. If inflation pressure builds again, lenders have less room to cut fixed rates and may become more cautious with pricing.’
He added: ‘Higher mortgage rates reduce what buyers can borrow. Monthly payments take up more of their income, budgets get trimmed and offers become more careful. That is when you can start to see pressure on prices, especially in areas where affordability is already stretched.’
Savills expects the property market to begin a ‘slow recovery’ in 2027, before an improved outlook allows prices to grow more strongly over the remainder of the forecast period.
| Region | 2026 | 2027 | 2028 | 2029 | 2030 | 5 years to 2030 |
|---|---|---|---|---|---|---|
| UK | -2% | 2.5% | 5% | 6% | 6% | 18.5% |
| London | -4% | 1% | 3.5% | 5% | 5% | 10.6% |
| South East | -3.5% | 1.5% | 4% | 5.5% | 5.5% | 13.4% |
| East of England | -3.5% | 2% | 4% | 5.5% | 5.5% | 13.9% |
| South West | -2.5% | 2.5% | 5% | 6% | 6% | 17.9% |
| East Midlands | -2.5% | 3% | 5.5% | 6% | 6% | 19% |
| West Midlands | -2% | 3% | 5.5% | 6% | 6% | 19.7% |
| North East | 0% | 3.5% | 6% | 6.5% | 6% | 23.9% |
| Yorks & Humber | 0% | 3.5% | 6.5% | 6.5% | 6.5% | 25% |
| North West | 0% | 3.5% | 6.5% | 6.5% | 6.5% | 25% |
| Wales | -0.5% | 3% | 6% | 6.5% | 6.5% | 23.2% |
| Scotland | -0.5% | 3% | 5.5% | 6.5% | 6.5% | 22.6% |
Residential property transaction levels
There were 101,030 residential property transactions in April on a seasonally adjusted basis, a 53 per cent increase on the same period last year.
HM Revenue & Customs said the rise was driven by comparatively low transaction levels in April 2025, when activity plummeted after the stamp duty thresholds changed.
Many transactions were brought forward to March 2025 so people could benefit from the lower thresholds.
Compared to March this year, residential property transactions fell 3 per cent from 103,910.
On a non-seasonally adjusted basis, HRMC estimated there were 85,880 residential transactions in April, 51 per cent more than last year and down 16 per cent on the previous month.
