BLOGS

The UK housing market is navigating choppy waters. After years of pandemic-fuelled growth followed by the 2022-23 rate shock, homeowners and buyers alike had hoped 2025 would bring stability. Instead, geopolitical turmoil in the Middle East has reignited inflationary pressures, keeping mortgage rates elevated and dampening buyer confidence across the country.

REalyse data shows the average UK sold price fell to £330,303 in 2025—a decline of 2.6% compared to 2024. Transaction volumes paint an even starker picture, dropping 11.4% year-on-year as stretched affordability kept many would-be buyers on the sidelines. The early months of 2026 suggest this cooling trend is far from over.

Inflation and the Middle East factor

The escalation of conflict in the Middle East since late 2024 has sent ripples through global energy markets. Brent crude prices have repeatedly spiked above $90 per barrel, feeding through to UK fuel and energy costs. The knock-on effect on headline CPI has been significant: inflation, which the Bank of England had hoped to tame towards its 2% target by mid-2026, has instead remained stubbornly above 3%.

For mortgage borrowers, this matters enormously. Persistent inflation has forced the Monetary Policy Committee to hold Bank Rate higher for longer than previously anticipated. As of spring 2026, the average two-year fixed mortgage rate sits above 5.2%, while five-year fixes hover around 4.8%—well above the sub-4% levels many buyers had banked on by now.

The Royal Institution of Chartered Surveyors (RICS) has reported consecutive months of falling new buyer enquiries and agreed sales. Estate agents across England and Wales cite affordability constraints and economic uncertainty as the primary drags on activity.

Regional divergence widens

Not all parts of the UK are feeling the chill equally. REalyse analysis of sales transactions over the past 12 months reveals a clear north-south split in price performance:

• Wales leads with modest growth of +1.6% year-on-year, supported by relative affordability and continued demand from remote workers

• Scotland has eked out +0.5% growth, with Edinburgh and commuter towns holding firm

• London has suffered the sharpest correction at -6.7%, as high-value flats and city-centre apartments bear the brunt of reduced international demand and elevated borrowing costs

• The South East and East of England have both recorded declines of around -2.5% to -2.6%, with premium markets softening most

This divergence reflects a broader repricing of what buyers are willing to pay in high-value areas when mortgage costs consume an ever-larger share of household income. Average sold prices in London (£599,170) remain more than double the UK-wide figure, making capital buyers particularly sensitive to rate movements.

Property type performance: flats under pressure

The stagnation is not uniform across property types either. REalyse data shows that over the past 12 months:

• Semi-detached homes have proved most resilient, with prices declining just 0.4%

• Detached properties recorded a modest -1.9% decline

• Terraced houses fell 3.8%

• Flats have suffered the steepest drop at -13.7%

The underperformance of flats reflects multiple headwinds: cladding and building safety concerns continue to affect saleability, while urban rental yields have come under pressure from rising service charges and landlord tax changes. Investors have pulled back, leaving first-time buyers to absorb stock at reduced prices.

For those tracking £/sqft metrics, the picture is slightly more nuanced. On a per-square-foot basis, most property types have shown marginal positive or flat movement, suggesting that average price falls are partly driven by a shift in the mix of properties transacting—with fewer high-value sales completing.

Forecasts revised downward

Major forecasters have responded to the changed outlook by trimming their 2026 predictions. Whereas early-2025 projections anticipated 3-4% house price growth by year-end 2026, most have now revised expectations to a range of just 1-2.5%.

Savills, Knight Frank, and the Office for Budget Responsibility have all cited the combination of higher-for-longer interest rates, subdued real wage growth, and global uncertainty as reasons for caution. The OBR's spring forecast now assumes house prices will be broadly flat in real terms through 2027, representing a meaningful downgrade from previous expectations.

For investors and developers, this environment demands careful underwriting. REalyse data on planning pipelines and local comparables becomes increasingly valuable when margins are tighter and exit values less certain. Schemes that might have pencilled out 18 months ago now require fresh stress-testing against more conservative price assumptions.

What to watch next

The trajectory of Middle East tensions remains the wild card. Any sustained de-escalation could ease energy prices, accelerate the path to lower inflation, and give the Bank of England room to cut rates more aggressively. Conversely, further escalation or supply disruptions could entrench the current rate environment well into 2027.

Key indicators to monitor include:

• Monthly mortgage approval data from the Bank of England—a leading indicator of transaction volumes three to six months out

• RICS new buyer enquiry balance—currently negative but any uptick could signal turning sentiment

• Core CPI readings—the Bank's preferred inflation gauge, which needs to fall convincingly before rate cuts accelerate

• Build-to-rent and investor activity—institutional buyers often move counter-cyclically, and increased BTR activity could provide a floor for flat and apartment values

For now, the UK housing market remains in a holding pattern. Sellers are adjusting expectations, buyers are negotiating harder, and transaction times are lengthening. Those with access to granular market intelligence—tracking local comparables, monitoring pricing trends by property type and postcode—will be best placed to identify opportunities and mitigate risks in this uncertain environment.