UK Home Price Forecasts Slashed as Middle East War Stalls Interest Rate Cuts

A Reuters poll reveals a cooler outlook for the UK housing market as the Iran war drives energy prices higher, forcing the Bank of England to delay interest rate cuts.

By: AXL Media

Published: Mar 18, 2026, 9:34 AM EDT

Source: Reuters

The "War Premium" and Mortgage Stagnation

The primary driver of the cooling market is the conflict involving Iran, which has introduced a new wave of inflationary pressure. Mortgage brokers, including John Charcol, note that instead of the anticipated rate relief, the BoE may now be forced to hold rates steady or even consider hikes to combat energy-driven inflation. Consequently, lenders have already begun raising mortgage rates, significantly dampening the purchasing power of prospective buyers who were banking on a 2026 recovery.

London and Urban Centers Face Muted Growth

London, traditionally the engine of the UK property market, is expected to see even more sluggish growth. Forecasts place London price increases at just 1% this year and 2% in 2027. While the city remains a target for international capital, the current geopolitical instability has caused a "wait-and-see" approach among foreign investors.

Conversely, the rental sector is decoupled from the sales slump. Urban rents are projected to outstrip house price growth, rising by more than 3% annually. This is attributed to a chronic supply shortage, exacerbated by the Renters' Rights Act, which some analysts argue has discouraged landlords from maintaining or expanding their portfolios.

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