BLOGS

Introduction

The UK property market entered 2026 with cautious optimism. Inflation was easing, mortgage rates were stabilising, and forecasters from Halifax to Nationwide predicted modest price growth of two to four per cent for the year ahead. Spring was expected to bring renewed activity after a subdued end to 2025.

Then came February's escalation of conflict in the Middle East.

Within weeks, oil prices surged, inflation expectations climbed, and lenders withdrew hundreds of mortgage products. The Bank of England, which had been expected to cut rates, instead held firm at 3.75% in April as financial markets began pricing in rate increases rather than reductions. The housing recovery that seemed within reach has been pushed firmly into the distance—though not everywhere equally.

A tale of two indices

The major house price indices tell subtly different stories, but the direction of travel is consistent. Halifax, whose measure is based on mortgage approvals, reported that average prices fell 0.5% in March and a further 0.1% in April—the first back-to-back monthly falls since the mini-Budget turmoil of late 2022. Annual growth slumped from over 2% in February to just 0.4% by April, with the average UK home now sitting at approximately £299,700.

Nationwide's figures have been marginally more resilient, recording a 0.9% monthly gain in March and annual growth of 2.2%, taking its average to £277,186. Robert Gardner, the building society's chief economist, nevertheless warned that the Middle East conflict represents "a significant shock" that could "reverse some of the improvement in housing affordability that has taken place in recent years."

Land Registry data—considered the most authoritative measure because it includes cash purchases—showed prices up 1.2% year-on-year in February at £267,957, though this reflects transactions agreed before the conflict's full impact was felt. Rightmove's asking price index, meanwhile, recorded the average asking price at £271,700 in March, with the portal noting that buyer demand rebounded after Easter to its highest level since hostilities began—though from a significantly lower base.

REalyse transaction data paints a starker picture of market activity. Sales volumes across England fell to approximately 666,000 over the past 12 months, down from over 1.1 million in the prior year—a decline of more than 40%. Average days on market have stretched to between 85 and 110 days depending on property type, with flats and bungalows taking notably longer to sell than terraced or semi-detached houses.

The mortgage rate shock

The mechanism connecting Middle Eastern conflict to British house prices runs through the mortgage market. The war's impact on energy prices and supply chains immediately fed through to inflation expectations, which in turn shifted the outlook for interest rates. Financial markets that had been pricing in two Bank of England rate cuts before the strikes on Iran were, by late March, anticipating three rate increases over the following 12 months.

This dramatic repricing hit mortgage rates hard. According to Moneyfacts, the average two-year fixed rate jumped from 4.24% in early March to above 5.4% by mid-April, with the average five-year fix climbing from 4.95% to 5.78%. For a buyer taking out a £200,000 mortgage, that translates to an additional cost of several hundred pounds per month.

Amanda Bryden, head of mortgages at Halifax, has been direct about the cause. "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," she said following the March data release.

The Royal Institution of Chartered Surveyors recorded the shift in real time. Its February survey showed new buyer enquiries falling sharply, with the balance dropping to -26 from -15 in January. House price expectations for the following three months collapsed to -18 from -6, the weakest reading in over a year.

Regional divergence accelerates

Perhaps the most striking feature of the current market is the extent to which geography now determines performance. REalyse data shows England recording a year-on-year price decline of 4.4%, while Scotland (+1.0%) and Wales (+2.4%) continue to post modest gains.

But it is Northern Ireland that stands out most dramatically. According to Nationwide's Q1 figures, prices in Northern Ireland rose 9.5% year-on-year—more than six times the UK average and nearly three times faster than the next strongest region. Land Registry data confirms the trend, showing Northern Ireland prices up 6.3% annually to £195,936.

This exceptional performance reflects several factors. Affordability remains far better than in most of England, with the average Northern Ireland home costing less than £200,000 compared to over £536,000 in London. The region has also benefited from spillover demand from the Republic of Ireland, where prices have been rising strongly.

Within England, the North-South divide has widened further. The North West continues to lead English regions with annual growth of 3.3%, followed by the North East at 2.6-5.0% depending on the index. Yorkshire and the Humber has also held up reasonably well.

Southern England tells a different story. Land Registry figures show the South East recording the steepest decline at -1.9% annually, while London prices fell 1.2% to an average of £536,751. Even within the capital, cheaper boroughs have outperformed wealthier areas, suggesting affordability constraints are biting hardest at the premium end.

REalyse data shows the average price per square foot in England declining 3.4% year-on-year, from £359 to £347—a meaningful erosion of value that will concern both homeowners and lenders with exposure to southern portfolios.

Property type and market liquidity

The conflict's impact has not been uniform across property types. Flats continue to underperform, with Nationwide reporting a 0.5% annual decline compared to gains of 1.5-2.4% for houses. Since the start of 2020, flat prices have risen by just 15%—half the 30% increase recorded for detached properties.

This reflects both structural changes in buyer preferences since the pandemic and London's dominance of the flat market. With the capital accounting for a disproportionate share of apartment sales, flat indices are dragged down by London's weakness.

REalyse market data shows semi-detached and terraced houses moving fastest, with median days on market of 50-60 days in recent months. Detached homes and bungalows are taking longer at 75-85 days median, while flats are seeing extended marketing periods of 70-80 days or more.

Transaction volumes have fallen across all types, but the decline has been most pronounced in higher-value segments where buyers are most sensitive to increased borrowing costs. Housebuilders have reported thinner traffic to websites and show homes, while agents note that many prospective purchasers are choosing to wait rather than transact at current mortgage rates.

What happens next

The trajectory from here depends heavily on events far beyond Britain's borders. Knight Frank's Tom Bill has described the market as moving through distinct phases: initial shock, mortgage repricing, and eventually gradual recovery. "The recent [spike in mortgage rates] will only put gradual downwards pressure on house prices as more favourable offers that pre-date the Middle East conflict take several months to lapse," he noted.

If ceasefire negotiations progress and energy markets stabilise, mortgage rates could ease later in the year—though few expect a return to pre-conflict levels. The Bank of England has signalled it will prioritise controlling inflation over supporting housing activity, and the government's constrained fiscal position limits scope for stimulus measures.

Most forecasters have trimmed their 2026 predictions. Where institutions had pencilled in growth of two to four per cent, many now expect gains of one per cent or less nationally, with southern regions potentially recording outright falls. Northern Ireland and the northern English regions look set to continue outperforming, widening a gap that has already reached 10 percentage points between the strongest and weakest areas.

For investors and developers, REalyse analysis suggests opportunities may emerge in markets where price adjustments have been sharpest but fundamentals remain sound. Areas with strong rental demand, improving affordability ratios, and robust local employment may prove more resilient than headline figures suggest—though buyers will need to move decisively once conditions stabilise.

The spring rebound has been deferred, but it has not been cancelled. The question now is whether the market can recover its footing before autumn, or whether conflict-driven uncertainty will cast a longer shadow over 2026's property prospects.