The UK property market faces renewed uncertainty as geopolitical instability in Iran threatens to reverse the modest recovery seen in early 2026, according to recent market analysis.
Data from the first quarter of 2026 showed positive momentum before the conflict escalated. Listings through week 11 reached just over 400,000, 12% above the 10-year average, according to TwentyEA data. Gross sales totalled just over 271,000, lower than the 287,000 recorded in 2025 but still the fourth highest level in the past decade. Prices continued to rise modestly, around 1-2% year-on-year across the UK.
Inflation and interest rate implications
The conflict has immediately impacted oil prices, with forecasters warning that inflation could rise to approximately 4%. If the conflict concludes relatively soon, inflation is expected to fall later in the year, with an overall average for 2026 potentially around 3.6%, similar to 2025 levels. Wage growth is expected to track at a similar level.
Interest rate forecasts have shifted considerably. While some analysts suggest rates could rise up to four times this year, equivalent to an increase of around 1% to 4.75%, the more widely expected scenario is that rates remain at approximately 3.75% throughout 2026. Meaningful reductions may now be delayed until 2027.
The Bank of England is expected to prioritise controlling inflation through interest rate policy, potentially abandoning earlier forecasts that rates could fall from 3.75% to as low as 3%.
Transaction volumes and pricing outlook
Despite the uncertainty, transactions are expected to reach around 1.2 million this year. Prices are likely to remain broadly stable, with some localised falls possible in London. The rise in oil prices may benefit Aberdeen, where prices have dropped by over 60% since September 2014.
Market indices from major providers show consistent patterns. Rightmove reported average new seller asking prices rose by 0.8% (£3,023) in March to £371,042, a typical increase for this time of year. The number of homes for sale remains at its highest level for 11 years, limiting price growth.
Halifax data showed average prices increased by 0.3% in February following a 0.8% rise in January, with annual growth reaching 1.3%, its strongest rate for four months. A typical property now costs £301,151.
Nationwide reported annual house price growth remained steady at 1.0% in February, with prices increasing by 0.3% month on month after accounting for seasonal effects. Total housing market transactions in 2025 were 10% higher than in 2024, with first-time buyer mortgage completions up 18% year on year.
Regional variations
E.surv reported national growth at 1.8%, with momentum led by Scotland, Wales and the North. The capital was down 2.5% year on year, dragging national averages. Zoopla noted that 40% of homes for sale are now cheaper to buy with a mortgage than rent, with average mortgage rates having dropped below 4% before the geopolitical tensions emerged.
The buy-to-let sector remains subdued compared to historic levels, with landlord activity continuing to face headwinds from the higher interest rate environment and regulatory changes impacting sentiment.
Home.co.uk data showed the mix-adjusted average home price for England and Wales jumped 0.6% during February, though annualised growth remains at just 0.6% higher than in March 2025. Marketing times for unsold property are at a five-year high, with the worst increases year-on-year found in London and the South West.
Market resilience
Industry observers note that the property market has demonstrated resilience during previous periods of instability over the past decade. However, the duration and outcome of the conflict will heavily influence whether current forecasts hold.
All index commentary and statistics are currently based on January and February data and do not yet reflect the full impact of the Middle East conflict. The geopolitical tensions have already added volatility to swap rates and are slowing the pace of mortgage rate reductions.
The market’s ability to maintain transaction volumes near 1.2 million annually, despite affordability challenges and constrained supply, suggests underlying demand remains robust. Regional disparities persist, with northern England and Scotland showing higher price rises than last year, while price falls have moderated in southern England.