UK Property Markets Slump Amid Iran Conflict, Mortgage Rate Spikes

The average price of a prime countryside property in the UK fell by 7.8% to £4.3 million in the last year, according to Savills. The value of expensive countryside homes dropped by £365,000 between the first three months of 2025 and the same period this year, the property consultancy reported. Sales for prime properties in London were 31% fewer in February than the year before, data from LonRes shows, while the number of available luxury homes worth more than £5m in London grew by 10% in the 12 months to February, according to multiple reports.

This downturn has been driven by market volatility stemming from the Iran conflict, which has seen the Strait of Hormuz effectively shut off since the US and Israel launched war on Iran on February 28. Lenders pulled mortgage deals at the fastest rate since 2022 in response, with hundreds of products withdrawn within 48 hours of the outbreak of war and replaced with more expensive deals, multiple reports indicate. The conflict has led to higher energy prices, increased inflation expectations, and a rise in mortgage rates, Halifax reported, with the average rate of fixed mortgages climbing above 5%, according to RICS. Iran's Khatam al-Anbiya Central Headquarters threatened devastating and widespread retaliation if attacks on civilians continued, adding to the uncertainty.

The broader UK housing market has slowed significantly. A net balance of 39% of professionals recorded falling new buyer enquiries in March, the weakest reading since August 2023, a RICS survey found. Agreed sales deteriorated in the same month, with a net balance of 34% of professionals recording declines, RICS data shows. Average house prices fell 0.5% in March, reversing a 0.3% increase in February, according to Halifax's house price index, while annual UK house price growth softened to 0.8% in March from 1.2% the previous month, multiple reports indicate. The volume of unsold stock on estate agents' books climbed to an average of 47 properties, up from approximately 45 at the beginning of the year, according to several sources.

Policy and economic factors are compounding the slowdown. Rachel Reeves's proposed 'mansion tax' would charge up to £7,500 annually on homes valued over £2 million from April 2028, affecting around 165,000 properties, multiple reports state. Higher mortgage rates have hit the first-time buyer market, with only serious buyers with large deposits able to move, according to RICS member Cheryl La. Analysts at Nationwide warned that potential Bank of England interest rate rises could push mortgage rates higher, undermining affordability. British government bond yields rose as investors trimmed expectations for Bank of England interest rate cuts, research indicates, while Deutsche Bank predicts UK house prices will fall by 3% to 5% this year due to the Middle East conflict.

Regional variations are stark. London, East Anglia, the South East and the South West recorded weaker price figures than the national average, while Scotland and Northern Ireland reported increasing prices, according to several sources. Northern Ireland led UK annual house price growth at 8.7%, followed by Scotland at 4.4%, multiple reports show. RICS members in East Anglia and London reported buyer enquiries falling off a cliff due to rising mortgage rates and economic uncertainty from the conflict in Iran, two sources said.

The turmoil extends beyond the UK, with Dubai's property market experiencing a severe crash. Dubai property prices have dropped by over 25%, with a luxury two-bedroom apartment reduced from £1.2 million to £900,000, according to multiple reports. Overall transactions in Dubai's property market were down by more than 50% this month, new research indicates.

In London's luxury market, the downturn is pronounced. Alongside the 31% sales drop and 10% supply increase, 5.4% fewer owners of prime properties triggered sales in February than in 2025, multiple reports state. In the luxury rental market in London, activity grew by more than a third as rents fell by 0.5%, according to several sources. Homes in outer London fell in price by almost 2% to £1.8 million during the same period, multiple reports indicate.

A tentative two-week ceasefire between the US and Iran was announced on 8 April, according to research from five sources. The ceasefire announcement saw oil prices fall and markets rally, but uncertainty remains over the next stage of the conflict in the Middle East. Property consultants Knight Frank suggested the two-week ceasefire could provide a boost to the property market, though an immediate turnaround appears unlikely.

The longer-term economic implications are severe. The global GDP at risk from the Iran conflict is estimated to be $3.5trn or 3.15% of global output if the Strait of Hormuz stays shut, research indicates. A report by Swiss-Korean think tank SolAbility projects that many Gulf economies face a collapse in revenue, with Gulf states facing simultaneous revenue collapse, infrastructure damage and fiscal reserve drawdown in the current scenario. Saudi Arabia's Vision 2030 non-oil revenue diversification strategy does not offset the scale of hydrocarbon revenue loss at current bypass constraints, the SolAbility report found. A report by Oxford Economics predicts a long-term hit to multiple sectors of Gulf countries' GDP, with the negative impact on tourism and domestic demand lasting much longer than the conflict. Some Gulf countries' public finances will improve significantly if they can export oil while prices remain high, but others will see deterioration in fiscal balances, Oxford Economics reported.

Financial markets have faced significant fallout. UK stock indexes were swept up in a global selloff as the Iran conflict fuelled a jump in oil prices and drove investors to safe-haven assets, research shows. Oil prices surged almost 7% after retaliatory Iranian attacks disrupted shipping in the Strait of Hormuz. The FTSE 100 closed down 1.2%, and the FTSE 250 fell 1.4%, according to research. Banks including HSBC, Barclays and Lloyds fell between 2.5% and 4.2% due to concerns about inflation and economic impact. British Airways operator IAG fell 5.5% after cancelling flights to Tel Aviv and Bahrain until March 3.

Property firm Savills has been directly impacted. Shares in Savills slid eight percent as the Iran war shakes confidence in the UK property market, multiple reports state. Savills' share price fell by 7.98% on Thursday to 922p, down six percent year-to-date, according to several sources. Savills has warned it is difficult to assess the impact to its Middle East operations from the Iran war. The company employs around 800 staff in the Middle East, historically a key growth area accounting for up to five percent of pre-tax profit, multiple reports indicate. Savills' immediate focus has been on ensuring staff safety in the Middle East, and it will continue to invest in the region, improving services in transactional activity and consultancy. Savills has agreed to buy Eastdil Secured Holdings for $1.1bn (£827m), funded with debt and new shares, and turned a £101m pre-tax profit in the year to December 2025, up 14%, with revenue of £2.6bn, up 6%, according to multiple reports.

Expert outlook for the UK market is mixed. Looking 12 months ahead, a net balance of just 1% of professionals expect sales to weaken, suggesting a broadly flat market, multiple reports indicate. Looking a year ahead, a balance of 2% of professionals expect price increases, pointing to little overall price growth, according to several sources. Mortgage rates are unlikely to quickly revert to earlier levels even if the Iran ceasefire holds, property experts warn. Knight Frank's suggestion of a potential market boost from the ceasefire contrasts with views that it is unlikely to abate concerns about UK property investment, highlighting uncertainty about whether the tentative pause will stabilize conditions.

Policymakers and analysts are assessing the conflict's economic impact. The Bank of England warned of 'intense volatility' on the market amid rising mortgage rates. Policymakers warned that an additional million homeowners were already paying more on their mortgages due to banks hiking rates because of the conflict in the Middle East. Analysts at Nationwide reiterated warnings about potential interest rate rises undermining affordability. BoE policymaker Alan Taylor said it was too soon to tell how the conflict would impact Britain's economy.

Implications point to persistent pressures. Mortgage rate increases so far remain below those triggered by Liz Truss's 2022 mini-Budget, according to Amanda Bryden of Halifax. However, the conflict in the Middle East has led to higher energy prices, increased inflation expectations, and a rise in mortgage rates, Halifax reported, with the average rate of fixed mortgages above 5%, RICS said. The Iran war has provoked panic in the mortgage sector, with lenders pulling deals at the fastest rate since the Liz Truss mini-Budget, multiple reports state, and analysts warn affordability remains undermined.

Key unknowns persist, including whether the tentative two-week ceasefire will hold or lead to a more permanent resolution. The exact impact on Savills' Middle East operations and profitability remains difficult to assess, as the company has warned. It is also unclear how long mortgage rates will remain elevated and when they might revert to pre-conflict levels. Contradictory signals exist on Middle Eastern investment, with some reports of an uptick in inquiries from buyers fleeing to London, while others suggest foreign investment from the region could slow or reverse due to the conflict, highlighting uncertainty about capital flows.