Iran Conflict Drives Mortgage Rates Higher, Pushing UK House Prices Into Decline
Iran Conflict Drives Mortgage Rates Higher, Pushing UK House Prices Into Decline
UK house prices are set to fall this year after the Iran war “fundamentally changed” the outlook for the housing market, leading estate agency Savills has warned, as rising energy costs fuel inflation and force mortgage rates upward.
Savills Reverses Forecast
Savills now projects a 2 per cent drop in house prices for 2026 — a sharp reversal from its previous forecast of a 2 per cent increase. The agency cited the conflict’s disruption to global energy supplies as the primary driver of the revised outlook.
“The conflict and the resultant rise in mortgage rates has fundamentally changed the outlook for the UK housing market,” Savills stated in its report.
Energy Prices, Inflation, and the Bank of England
The war has pushed up global oil and gas prices, stoking inflation and placing pressure on the Bank of England to raise interest rates — or at minimum, abandon plans to cut them. Financial markets now anticipate a rate rise later this year rather than the reductions previously expected.
Lenders have already responded. According to Rightmove data, the average two-year fixed-rate mortgage now stands at 5.13%, while the five-year fixed rate has reached 5.15% — both approximately half a percentage point higher than a year ago.
A Market Already Under Pressure
The Savills report is not an isolated signal. A recent poll by the Royal Institution of Chartered Surveyors (RICS) also pointed to a subdued housing market, suggesting the conflict’s economic ripple effects are being felt across the sector.
Higher borrowing costs directly affect those remortgaging or purchasing property, compressing affordability at a time when household finances remain stretched.
Who Is Most Exposed
The rate increases affect a broad range of borrowers:
The convergence of geopolitical instability, energy price shocks, and tightening monetary conditions has placed the UK housing market under sustained pressure — with no immediate relief in sight.