UK house prices fall as Iran war uncertainty dampens demand

Average UK house prices fell by 0.5% in March, according to Halifax, as mortgage rates driven higher by the repercussions of the Iran war dampened demand.

The average property price is now £299,677 while annual growth has also slowed, the UK's biggest mortgage lender said.

The drop reverses a 0.3% rise in February before the beginning of the conflict which drove up energy costs, raising fears that inflation could climb and there would be no cuts to interest rates this year.

Mortgage rates have jumped and hundreds of the cheapest deals have disappeared over the last few weeks.

Last month saw the biggest daily withdrawal of deals since the disastrous mini-Budget in 2022 under the then Prime Minister Liz Truss.

But Halifax said the recent increase in mortgage rates had not been as sharp as four years ago.

Amanda Bryden, head of mortgages at Halifax, said: "The recent slowdown in the housing market reflects the wide uncertainty regarding the conflict in the Middle East.

"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."

Oil prices have soared in the weeks since the US-Israel war with Iran began.

On Wednesday, Brent crude prices fell by 15% to $94 per barrel following plans for a conditional ceasefire between Washington and Tehran.

However, oil remains 30% more expensive than it was before the conflict began on 28 February, and there was no improvement in mortgage rates in the UK as a direct result of the ceasefire.

Interest rates on new, fixed-rate mortgages were expected to be heading down before the conflict began.

Instead, they have risen sharply. The average rate on a two-year deal was 4.83% at the start of March, but is now 5.90% - the highest since July 2024, according to the financial information service Moneyfacts.

Commenting on how long weaker demand might last, Bryden said it would "largely depend on how long‑lasting these pressures prove to be and the wider implications for the economy and unemployment".

Mortgage lenders are cautious, especially as the situation remains volatile.

"The longer the ceasefire holds and markets calm, the more the mortgage market will stabilise, and rates could even begin to edge lower," said Adam French, head of consumer finance at Moneyfacts.

"But for now, it's more likely to slow or pause increases rather than trigger any sharp falls."

The UK inflation rate, which measures the pace of price rises, was 3% in the year to February as cheaper motor fuel offset the increased cost of clothing and footwear.

The Bank of England, which has a 2% inflation target, had hinted at cutting interest rates this year.

This would be good news for borrowers, as Bank of England rates influence the mortgage rates set by financial institutions.

However, since March, prices for petrol and diesel have jumped significantly to the highest since late 2022, according to the RAC motoring organisation.

When inflation is high, the Bank can raise interest rates to bring it down.

If borrowing is more expensive, people and businesses have less money to spend. People may also be encouraged to save more. In turn, this reduces demand for goods and slows price rises.

But it is a balancing act - increasing borrowing costs risks harming the economy.

Rachel Winter, a partner at wealth management company Killik & Co, told the BBC's Today programme the outlook for inflation was "possibly not as high" as it had been on Tuesday "because we now feel more optimistic about a deal".

But she said interest rates are unlikely to go down this year.