Homeowners will lose an average of £10,000 over the next three years as the Iran war pushes down house prices.
House price growth is expected to slow as households face higher mortgage and energy costs due to the impact of the conflict, economists have warned.
Experts said it is “not an easy market” for sellers, who are discounting their properties as demand drops.
One seller told The i Paper she has dropped her asking price by £25,000 but is still struggling to find a buyer.
Mortgage rates have jumped over the past few weeks due to market expectations that interest rates will rise to combat higher inflation.
Two-year fixed rates have jumped from 4.84 per cent to 5.84 per cent on average in the past month, while five-year fixes rose 4.96 per cent to 5.75 per cent, marking the sharpest rise since the mini-Budget in autumn 2022, according to Moneyfacts, a data analyst.
Wholesale oil prices, which affect the cost of petrol and other products, have soared after Iran effectively blocked the Strait of Hormuz, a critical waterway for oil shipments.
How house price forecasts have changed
Since the conflict began, Oxford Economics, a leading economic consultancy, has revised down its forecasts for house prices, which are expected to increase by 1.4 per cent this year, down from 1.8 per cent.
Next year, house prices are predicted to rise by just 0.5 per cent, compared with 2.3 per cent before the war, figures shared with The i Paper show. Prices are set to grow by 2.4 per cent in 2028 instead of 3.7 per cent.
Analysis of these forecasts shows the stalled growth will cost the average homeowner £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 – a cumulative rise of nearly 8 per cent.
But now, this has fallen to £280,800, with the increase slipping to 4.35 per cent over the same period.
The average home cost about £269,100 at the end of last year, according to the Land Registry.
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.”
Oxford Economics expects inflation to rise above four per cent in the second half of this year, up from a previous forecast of two per cent.
Higher unemployment to affect house prices
Goodwin said higher unemployment and lower household incomes would also affect how much buyers are willing to spend on properties.
In 2023, during the aftermath of the energy price spike caused by the war in Ukraine, workers were able to secure larger pay rises to mitigate the impact, he said.
“But this time around, workers are likely to find themselves in a weaker position – unemployment is much higher than it was back then, economic growth is low, and company profitability is very weak,” he said.
“So we think the feed through of high inflation to pay growth will be weaker.”
Jonathan Hopper, chief executive of buying agent Garrington Property Finders, said he expects it to be a “buyer’s market” for the rest of this year as the supply of homes outstrips demand.
He said: “We’re getting discounts on a more regular basis, and agents are having to price competitively to attract buyers in the first place.
“This was already going on, and it’s about to be exacerbated because there is a ton of stock being launched for Easter that will just end up bringing more supply to the market.”
London and South worst affected
Hopper said the housing market has slowed more in the South and London, where prices are higher and mortgage rates therefore have a bigger impact on how much people need to borrow.
Richard Donnell, executive director at property portal Zoopla, said enquiries from buyers are lower than they were at this time last year and the number of homes for sale is close to its highest level in a decade.
He said it’s “not an easy market out there” and sellers know they need to be “realistic” when pricing their homes.
Many buyers secured their mortgage deals before the war began so it will take some time to see the full impact of higher rates on the market, he said.
“There’s a lot of choice, so it definitely is a buyer’s market. It’s more of a buyer’s market in London and in the south of England. In London, there are 16 per cent more homes for sale than a year ago.”
This is reflected in house prices. In London and the South-East, house prices have been falling or flatlining, Donnell said, while in Scotland and the North-West they have been growing by 2.75 per cent to 3.5 per cent.
‘I had to drop my asking price by £25,000’
Heather Scott, 53, from the village of Great Barton in Suffolk, said she has been struggling to sell her home since she put it on the market last July.
The four-bedroom bungalow was initially listed at £475,000. She then dropped the listed price to “offers in excess of” £450,000.
Scott agreed to an offer below the asking price in December 2025, but her buyer’s buyer pulled out three weeks ago, which scuppered the plans.
Heather Scott has been trying to sell her home since JulyShe has put the house back on the market at “offers over” £450,000 but fears she may have to drop the price again.
Her home uses heating oil, which is not protected by the energy price cap and has jumped in price since the war began, warding off some buyers.
Before the war began, she paid £434 for half a tank of fuel, but prices have now jumped to around £800.
The Government announced more than £50m in support for low-income households last month but she said this is unlikely to help her.
She said she is having to be “very patient” and “very flexible” on price.
“You’ve got three times as many houses on the market as you have buyers,” said Scott, who runs her doggy daycare The Pug Snug from home. “You’ve also got the Renters’ Rights Act coming through on 1 May, so you’ve got a lot of landlords selling up.
“You’ve got all those extra houses on the market, as well as what you would call normal sellers. It is a really difficult situation.”
New-build homes are also being discounted in her area because developers are struggling to sell them, she added.
Scott dropped the price of her four-bedroom bungalow from £475,000 to ‘offers in excess of’ £450,000Scott said her home was worth £550,000 when Labour came into power in July 2024.
She moved into the home to care for her mother until her death, and has now inherited the property with her sister. They are selling the house to split the proceeds. Scott will use her share to buy another property.
She will have to take out a mortgage when she buys her next property, and rates already tend to be higher for self-employed people like her.
“I’m hoping that I can get a better offer so I don’t need quite so big a mortgage because the rates have just gone up, which is not ideal at all,” she said.
“It’s a bit of a nightmare,” she said. “Hopefully, we’ll get through it.”
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