The housing market has been jolted by a conflict far beyond Britain’s borders. What looked like a stronger spring for sellers has quickly turned more cautious, as higher mortgage rates, dearer energy and softer demand begin to reshape expectations. Economists now warn that the average homeowner could be £9, 800 worse off over the next three years, a shift driven by slower house price growth rather than outright falls. For sellers already cutting prices, the message is clear: the market is becoming harder to read, and harder to close.
Why the housing market is weakening now
The immediate pressure is coming from borrowing costs. Average two-year fixed mortgage rates have jumped from 4. 84 per cent to 5. 84 per cent in the past month, while five-year fixes have risen from 4. 96 per cent to 5. 75 per cent. That is the sharpest increase since the mini-Budget in autumn 2022, based on Moneyfacts data.
The broader picture is just as important. Wholesale oil prices have soared after Iran effectively blocked the Strait of Hormuz, a critical route for oil shipments. That has increased expectations of higher inflation, which in turn has reduced the scope for the Bank of England to cut rates. Oxford Economics now expects inflation to rise above four per cent in the second half of this year, up from a previous forecast of two per cent.
That combination matters because the housing market depends heavily on affordability. One seller has already dropped her asking price by £25, 000 and still has no buyer. That is not an isolated anecdote; it reflects a market in which fewer buyers are competing for properties.
What the forecasts say about prices
Oxford Economics has revised down its house-price forecasts since the conflict began. Prices are now expected to rise by 1. 4 per cent this year, down from 1. 8 per cent. Next year, growth is forecast at just 0. 5 per cent, compared with 2. 3 per cent before the war. By 2028, the projected increase is 2. 4 per cent rather than 3. 7 per cent.
Those changes add up. Analysis of the revised forecasts suggests the average homeowner will lose £9, 800 over the next three years. Before the war, the average home was expected to be worth £290, 600 by the end of 2028. That has now been marked down to £280, 800. The average home cost about £269, 100 at the end of last year, the Land Registry.
This is not a collapse in values, but it is a meaningful loss of momentum. In practical terms, the housing market is moving from growth to stagnation. For existing owners, that means less equity creation. For would-be movers, it means weaker confidence and less room to stretch for a purchase.
Expert warnings on demand and affordability
Andrew Goodwin, chief UK economist at Oxford Economics, said: “With the conflict likely to mean inflation is higher, financial markets think there’s less scope for the Bank of England to cut interest rates. This is already feeding into higher mortgage rates, damaging affordability, and is likely to weaken demand in the housing market. With fewer buyers competing for properties, house price growth is likely to remain weak. ”
He also said higher unemployment and lower household incomes would affect how much buyers are willing to spend. That is crucial, because a housing market can absorb some pressure from rates alone, but affordability becomes far more fragile when borrowing costs, living costs and incomes all move in the wrong direction at once.
Robert Gardner, chief economist at Nationwide, said the conflict had “clouded the outlook” and that rising swap rates were underpinning fixed-rate mortgage pricing. He said consumer sentiment was likely to be dented by uncertainty and the prospect of rising energy costs, making housing market activity likely to soften.
Karen Noye, a mortgage expert at Quilter, said expectations of easing borrowing costs and gradually improving affordability had supported activity earlier in the year, but that progress had been “rapidly undone” in the last month. She said lenders had been withdrawing products or repricing fixed-rate deals at short notice, leaving prospective buyers and movers facing a rapid deterioration in affordability.
Regional resilience, but a softer national outlook
Even with the wider slowdown risk, the latest figures show that conditions are not uniform across the UK. Nationwide said Northern Ireland recorded the strongest year-on-year growth in the first quarter, at 9. 5 per cent to £225, 269. The north-west of England followed with 3. 3 per cent growth to £229, 173, while Scotland rose 3 per cent to £191, 747.
At the weaker end, the outer south-east of England saw a 0. 7 per cent annual fall to £336, 036, while East Anglia slipped 0. 4 per cent to £273, 237. Across the east, West Midlands and south-west, prices rose by less than 1 per cent over the same period.
That uneven performance matters because it suggests the housing market is not reacting as a single block. Some areas still have momentum, but the national direction is now being shaped by higher mortgage costs, weaker sentiment and a more uncertain inflation outlook. The spring selling season may still produce deals, but with less urgency and more bargaining power shifting toward buyers. If inflation remains elevated and mortgage pricing stays high, how much further can the housing market slow before sellers are forced to reset expectations again?
