Reported by The Guardian
House prices forecast to fall by 1.5% next year as Middle East war keeps mortgage rates higher for longer
Britain’s sluggish housing market is not expected to recover until 2028 as higher mortgage rates linked to the war in the Middle East deter buyers and weigh on prices.
The property firm Savills said average house prices were expected to drift lower during the rest of 2026 and fall by 1.5% in 2027, as the prolonged conflict undermines buyers’ confidence and keeps mortgage rates higher for longer.
More from the original report
Improving economic prospects and mortgage affordability are expected to support a recovery from 2028.
Savills expects house prices to rise by 15.8% – or £56,500 on average – over the five years to 2031, with values starting to recover in the second half of 2028.
Nationwide said last week that UK house prices had risen by an annual rate of just 0.5% in October, the slowest pace in more than two years. The average price for a property in the UK stood at £273,566, the lender said .
The Bank of England is widely expected to increase interest rates from 3.75% to 4% on Thursday, putting further pressure on mortgage rates, after UK inflation rose to 3.5% in September.
More than 2.3m UK households face a sharp rise in mortgage payments as they come off fixed-rate deals in 2027.
Emily Williams, the director of residential research at Savills, said: “The drawn-out conflict in the Middle East has pushed back the prospect of meaningful mortgage rate relief, which will weigh on buyer sentiment and affordability.
“We expect this will suppress activity and put pressure on prices next year. But this is unlikely to trigger a sharper correction.
“Most homeowners have already absorbed higher borrowing costs since late 2022, with relatively few still needing to refinance directly from rates below 2%, and the labour market remains resilient.”
The strongest five-year house price growth in percentage terms is forecast across northern England, Wales and Scotland, supported by relative affordability and economic prospects, according to the prediction.
Savills expects first-time buyers to lead the recovery from 2028, helped…