UK Housing Market Slows as Iran War Continues to Bite
The UK housing market has slowed down due to higher mortgage rates caused by the ongoing Iran war. According to Savills, house prices rose by only 0.1% in July, resulting in an annual growth of 1.8%. This is in line with their forecast that expected a slight decline in price growth during 2026.
The increasing mortgage rates have led to decreased market activity and volatility in rate pricing, creating uncertainty for potential buyers. Financial markets are still predicting two base rate rises over the coming months, which will likely keep mortgage rates high.
Economic forecasts suggest that the Bank of England may hold interest rates steady until 2027, when rate cuts can resume. Oxford Economics predicts that the bank rate will remain at 3.75% well into 2027 to balance near-term inflationary shocks and longer-term fragility in the UK labour market.
Low mortgage approvals and completed transactions are further evidence of the challenging mortgage market. While sales agreed have returned to their pre-2017 average, levels of supply remain high, and sales are slow.