Two of the largest agencies with major research departments – Savills and Knight Frank – are warning of tough times ahead for the housing market.
Firstly Savills warns that average mainstream UK house prices are now expected to fall 2% by the end of this year.
And it expects the most significant pressure on prices to come over the summer when interest rates are expected to be at their highest.
The firm, which had previously forecast a rise of 2% in 2026, has also downgraded its forecast for price growth over the next five years.
The conflict in Iran and the resultant rise in mortgage rates has fundamentally changed the outlook for the UK housing market, it says.
A significant increase in inflation has meant that households are facing higher mortgage costs and reduced availability of debt. As a result, Savills has revised its forecast for 2026 down from +2% to -2%.
“Higher borrowing costs and weaker sentiment will weigh on demand through the remainder of 2026,” comments Lucian Cook, head of residential research at Savills.
“At the same time, lower demand is being set against elevated levels of stock – partially from landlords selling up in the face of greater regulation, which will place downward pressure on prices, particularly across submarkets in London and the South East.”
Cook continues: “Several factors will cushion the impact of these headwinds. Affordability is less stretched now, compared with 2022, following a slower recovery in prices.
“While stricter mortgage regulation and the widespread use of fixed-rate mortgages continue to keep the risk of forced sales low.
“Overall, this points to a modest adjustment in nominal house prices, with the greatest pressure likely to come over the summer as interest rates peak.”
But he admits that the main risk to this outlook is that a more protracted conflict in the Middle East leads to a sharper rise in inflation and, in turn, interest rates.
Savills cautions that this would result in a more significant short‑term pressure on house prices, followed by a more pronounced V‑shaped recovery.
As usual with Savills, it gives a more upbeat forecast for the medium term and beyond.
And it suggests that over the five years to 2030 average house prices wll increase 18.5% or £67,000.
| 2026 | 2027 | 2028 | 2029 | 2030 | 5 years to 2030 | |
| UK house price growth | -2.0% | 2.5% | 5.0% | 6.0% | 6.0% | 18.5% |
| CPI inflation | 3.9% | 1.9% | 1.9% | 2.0% | 2.0% | 12.2% |
| Bank of England base rate (at year end) | 3.75% | 3.50% | 3.00% | 2.75% | 2.50% | – |
| Assumed average mortgage rate (at year end) | 4.78% | 4.34% | 3.98% | 3.71% | 3.50% | – |
| Real GDP growth | 0.7% | 0.7% | 1.8% | 1.7% | 1.4% | 6.5% |
Meanwhile Knight Frank carefully couches its warning, saying it expects “continued downwards pressure on activity” throughout 2026.
Tom Bill, head of UK residential research at Knight Frank, gave the warning after the release of the latest transaction data by HM Revenue & Customs.
Bill comments: “Transactions fell 3% between March and April at a time of year when the property market would normally be gaining momentum.
“We expect continued downwards pressure on activity as mortgage offers that pre-date the Middle East conflict begin to disappear.
“Domestic political risks will increase over the summer as speculation inevitably intensifies around which taxes will increase in the autumn Budget and the identity of the Chancellor, causing buyers to hesitate and prices to be squeezed further.”
In response to the transaction data, Ian Futcher – from the wealth management firm Quilter – cautions that “cracks are slowly beginning to show.”
He continues: “These figures are a lagging indicator of market health, as completions typically take several months from offer to finalisation.
“As a result, much of this data reflects decisions made before the outbreak of the Middle East conflict and the subsequent rise in mortgage rates, meaning the full impact of recent events is yet to feed through.
“While the Bank of England chose to hold rates at its most recent meeting, whether it can maintain that position will depend on how heavily and for how long the conflict continues to weigh on the wider economy. Until there is clearer progress towards resolving the [Iran] conflict, we can expect demand and overall activity to remain subdued.”
