The Iran war looks to have dented confidence in the housing market.
The latest RICS UK Residential Market Survey has turned negative again after there were signs of a recovery earlier this year.
While some surveyors reported a more encouraging start to the year, confidence has weakened as concerns over inflation, interest rates and global instability intensified, RICS said.
New buyer enquiries weakened further in February, with the headline net balance slipping to -26%, down from -15% in January.
Agreed sales also remained subdued, posting a net balance of -12%, while near-term sales expectations softened to -2%.
Despite this, the longer-term outlook remains more resilient, with a net balance of +17% of respondents still expecting sales activity to rise over the next 12 months.
House prices were broadly flat at the national level in February, with the headline price net balance registering -12%, only slightly weaker than the previous month. However, regional divergence remains pronounced. London (-40%), the South East (-24%) and East Anglia (-26%) continue to see the most downward pressure, while Northern Ireland, Scotland and the North West of England are still reporting firmer price trends.
Looking ahead, surveyors have become more cautious on prices in the short term, with the near-term price expectations balance falling to -18% from -6% in January. Over a 12-month horizon, however, sentiment remains positive overall, with a net balance of +33% expecting prices to edge higher, albeit at a more moderate pace than previously anticipated. In London, that improvement has cooled sharply, with the 12-month expectations balance dropping to +7% from +56%.
On the supply side, new instructions remained broadly stable at +2%. Market appraisals were also broadly unchanged, indicating little immediate shift in the pipeline of new stock.
There is downward momentum in confidence since the Iran conflict began with several respondents naming it directly. Ian Perry FRICS of Perry Bishop, said ”definite green shoots across the board, although Iran conflict may have a negative effect.”
RICS head of market research and analytics Tarrant Parsons said “February’s survey highlights renewed volatility in the market. While activity indicators at the start of the year suggested a tentative improvement, the deterioration in the geopolitical backdrop has clearly weighed on confidence.
The recent rise in oil and energy prices has also increased the likelihood that mortgage rates will remain higher for longer. As a result, near-term expectations have softened. Although the twelve-month outlook remains positive overall, maintaining that trajectory will depend on the recent spike in inflationary pressures easing in the months ahead.”
The Middle East conflict may delay mortgage rate cuts
The prospect of lower mortgage costs may be getting further away due to the Iran conflict, Halifax has warned.
It comes as the latest Halifax House Price Index for February showed monthly house price growth slowed to 0.3% from 0.8% in January but was at a four month high annually of 1.3%.
This put average UK house prices at £301,151.
Regional differences in house price performance remain significant, with a clear split between stronger growth in the North and softer conditions in the South, Halifax said.
Northern Ireland continues to lead the UK, with average prices up 6.3% over the past year to £218,608. Scotland also recorded strong growth, rising 4.7% annually to an average price of £222,286.
Elsewhere, Wales saw a more modest increase of 2.4% on an annual basis, taking the typical home value to £231,637.
Within England, stronger price growth remains concentrated in northern regions. The North East saw prices rise 3.5% over the year to £181,838, while the North West recorded annual growth of 2.9%, with the average home now costing £246,292. In contrast, the more expensive southern markets continue to see prices ease. The South East led declines, with prices down -2.2% year‑on‑year to £383,834, while London saw average values fall by – 1.0% to £538,200.
Amanda Bryden, head of mortgages at Halifax, said “these latest figures suggest the market has regained some momentum after a softer end to 2025. While industry data for January show a slight easing in new mortgage approvals, overall activity has continued to prove resilient.
There’s no doubt that affordability remains stretched, supply is constrained, and regional disparities persist. For those without family support, the path to home ownership feels particularly challenging.
However, conditions have been gradually improving, with easing interest rates and real wage growth helping to support buyer confidence. As ever, timely and expert advice remains key to helping more people achieve their goal of stepping onto the property ladder. Looking ahead, geopolitical uncertainties seem set to influence the outlook for inflation and the wider economy. Against that backdrop, markets are now anticipating a more gradual path for interest rate reductions. If realised, the speed at which borrowing costs ease may be tempered.
Commenting on the index, Tom Bill, head of UK residential research at Knight Frank, said “momentum in the housing market had been rebuilding after November’s Budget and the outlook for mortgages was brighter only a week ago.
However, a prolonged conflict in the Middle East would dampen sentiment and delay rate cuts due to rising inflation, which would put downwards pressure on prices.
That said, we have seen how quickly interest rate expectations can change this year, and the underlying weakness in the jobs market is one of several reasons that multiple cuts could come back onto the table in 2026, which would support demand. A lot hinges on the length of the conflict.”
The Bank of England had cut interest rates four times in 2025, bringing the base rate to 3.75%. However, the probability of another rate cut this month has dropped from 80% to less than 30% following the recent escalation in tensions, with traders now expecting just one cut by the end of the year instead of two.
Mortgage lenders are already re-pricing their products upwards in anticipation of a longer Middle East war and no Bank of England base rate cut this month.
Some lenders cancelled planned rate cuts last week while others – notably Gen H, HSBC, Nationwide, Santander, West One and Coventry Building Society – have announced selected fixed rate increases.
Analysts noted that whilst the surge in gas prices has been significant, the market impact remains smaller than the shock caused by Russia’s 2022 invasion of Ukraine. However, the combined effect of higher energy costs, increased inflation expectations, and elevated interest rates presents challenges for property market participants across the UK.
The situation continues to develop, with financial markets monitoring geopolitical developments and their potential impact on energy supplies and broader economic conditions.
Tight Headroom
With the uncertainty of the energy prices, this could influence the autumn Budget. Higher borrowing costs and increased defence spending may reduce the government’s financial headroom, which could force further tax rises.
If we see this current economic situation extended, then undeniably you will have speculation on headroom being diminished. They are not going to do anything broad-based but may look at discreet revenue raisers like the corporate bank tax.
Would property feature again? The government has said High Value Council Tax bands will only increase in line with inflation from 2029/30 and, even a Chancellor to the left of Rachel Reeves won’t want to do anything that holds back the housing market.