The mood across the UK housing market has shifted markedly over the past couple of months, with property experts warning that high mortgage rates are unlikely to deflate immediately even if the Iran ceasefire holds. Rising rates continue to stifle demand for houses, creating significant challenges for buyers and sellers alike.
Sharp Decline in Buyer Enquiries and Sales
According to the Royal Institute of Chartered Surveyors (RICS), the number of Brits enquiring to buy a new home fell even further in March, dropping from negative 29 percent in February to minus 39 percent last month. This brings the metric to its weakest reading since August 2023, indicating a substantial cooling in market activity.
Agreed sales deteriorated significantly in March as well, dropping to a net balance of negative 34 percent, down from minus 13 percent in February. Property experts attribute this slowdown to Brits delaying housebuying plans to avoid rising mortgage rates, with the health of the market now dependent on whether the Iran war reaches a sustained end.
Mortgage Market Turmoil
Lenders have pulled mortgage deals en masse since the start of the conflict, with most sub-four percent mortgages having been swiped off the market since the end of February. The average rate of fixed mortgages has climbed above five percent according to some metrics, creating a much less favorable borrowing environment for prospective homeowners.
The absence of favorable mortgage deals, combined with fears that the Bank of England could hike interest rates multiple times this year, is significantly slowing the property market. This combination of factors has created what experts describe as a "challenging" environment for both buyers and sellers.
Price Softening and Inventory Buildup
House prices are softening too as demand wanes, with 23 percent of property professionals seeing average prices fall last month, up from 14 percent in February. A further 43 percent of estate agents expect asking prices to deteriorate further in the next three months, suggesting continued downward pressure on property values.
Falling demand means property professionals are being swamped by unsold homes, with vacant stock making up 47 percent of the average estate agent's books, up from 45 percent in January. This inventory buildup indicates a market where supply is beginning to outpace demand, potentially leading to more significant price adjustments in the coming months.
Ceasefire Impact Limited
President Trump's announcement of a ceasefire on Tuesday night could offer hope that interest rate conditions will improve, potentially boosting property confidence. However, property experts at Knight Frank warn that the Iran war has caused lasting damage to mortgage conditions in the UK that won't be easily reversed.
Tom Bill, head of UK residential research at Knight Frank, explained: "Sentiment in the UK housing market will improve if the two-week ceasefire in the Middle East holds, supporting transaction levels as the spring market gets underway. However, mortgage rates won't snap back to where they were in February due to the longer-term inflationary impact of the war and the associated vulnerability of the government's financial position."
Market Outlook Remains Cautious
Tarrant Parsons, head of market research at the RICS, summarized the current situation: "The mood across the UK housing market has shifted markedly over the past couple of months. What had been a cautiously improving picture for activity has been knocked off course by the wider macro fallout from the Middle East conflict, as the renewed deterioration in the mortgage rate outlook has proved particularly challenging."
The combination of geopolitical uncertainty, rising mortgage rates, and deteriorating buyer sentiment has created a perfect storm for the UK housing market. While the ceasefire offers some hope for stabilization, experts caution that the market faces significant headwinds that will likely persist even if peace holds in the Middle East.
