UK house prices fall as Iran war uncertainty hits property market

Brits are freezing home moves amid fears mortgage rates could soar

House prices dropped in March as the uncertainty caused by conflict in the Middle East stifled the property market and spiked fears of interest rate rises. Average house prices fell 0.5 per cent last month, reversing the modest 0.3 per cent February increase, according to Halifax’s house price index.

It is the latest signal the Iran war is shaking confidence in the UK property sector as Britons freeze home moves amid fears mortgage rates could soar. The average property price fell to £299,677 in March, as annual price growth slowed to 0.8 per cent, down from 2.1 per cent in February.

Property prices continue to slump in London, down 1.2 per cent in the year to March, to an average of £536,751, as reported by City AM.

Amanda Bryden, head of mortgages at Halifax, said: “The recent slowdown in the housing market reflects the wide uncertainty regarding the conflict in the Middle East.

“Concerns about higher energy prices have pushed up inflation expectations, which in turn led to a rise in mortgage rates, reducing confidence that interest rates will be cut this year and dampening the initial momentum in the market seen at the start of the year.”

Recent data showed signs the UK’s property market was beginning to recover from a subdued period surrounding the Budget, before the Iran war broke out.

Mortgage approvals rebounded in February following a two-year low the previous month, with other house price indices indicating the market was gradually regaining momentum in February and March.

However, experts remain split over whether the Iran war – which housebuilders claim has dented buyer confidence – will present a prolonged threat to the property market.

The Iran war prompted lenders to withdraw mortgage products at considerable speed, with the number of available deals having fallen by a fifth since hostilities began.

Last week, analysts at Nationwide warned that the prospect of multiple Bank of England interest rate rises this year – despite several cuts having been anticipated just months ago – could push mortgage rates higher, undermining affordability.

Bryden noted that the mortgage rate increases witnessed so far remain below those triggered by Liz Truss‘ notorious 2022 mini-Budget.

Several housebuilding firms have urged the government to improve affordability for first-time buyers, which would subsequently stimulate the market by making new home construction more commercially viable.

Major property industry players – including estate agency Foxtons and housebuilder Berkeley – have indicated that government regulation and tax policies are creating significant challenges for their operations.

Property consultants Knight Frank suggested that the two-week ceasefire brokered between the US and Iran on Tuesday night could provide a boost to the property market, though an immediate turnaround appears unlikely.

Tom Bill, head of UK residential research, said: “What goes up must come down, but for mortgage rates the drop will be more gradual than the sharp increase triggered by the Middle East conflict, even if the two-week ceasefire deal holds.

“Sentiment in the housing market will improve if the war stops, but its longer-term inflationary impact and weaker demand for UK government debt due its tight financial headroom and apparent inability to cut spending means mortgage rates won’t snap back to where they were in February.”