Housing market weakens in England and Wales amid Iran war fears

The housing market in England and Wales is weakening as fears of higher mortgage rates and rising inflation stemming from the Middle East conflict dampen buyer and seller sentiment, according to estate agents.

Demand from potential homebuyers across England and Wales has shown a notable softening recently, according to a monthly survey of estate agents by the Royal Institution of Chartered Surveyors (RICS).

Members reported that buyers and sellers are becoming more cautious, with many agents citing client concerns over potential increases in inflation and interest rates in the coming months, leading to slower sales, fewer homes on the market, and more price-sensitive buyers.

The Bank of England warned last month that interest rates may need to rise in the coming months as higher inflation is unavoidable due to the war in the Middle East and the resulting surge in oil and gas prices.

Mortgage rates are also expected to be affected by the current sharp rise in government borrowing costs, as swap rates, which lenders use to price fixed-rate mortgages, tend to move in tandem with government bond yields.

Tarrant Parsons, head of market research and analysis at RICS, said: “Until there is a clearer path for inflation and borrowing costs, activity and sentiment look set to remain subdued, particularly across southern England and London where affordability pressures are most acute.”

A net balance of 34% of RICS members reported a decline in new buyer inquiries in April compared to the previous month, a slight improvement from the 40% net balance in March, but still indicative of weak market momentum, the institute said.

The volume of agreed sales deteriorated in April, with a net balance of 36% of members reporting a fall, versus 35% a month earlier. Estate agents remain pessimistic about near-term improvement over the next three months.

The flow of new properties being listed for sale was largely stagnant in April, while a net balance of 34% more members reported decreases in house prices over the past three months than increases, marking a further deterioration from the -25% reading in March.

Regional divides in house price growth are widening, with stronger price falls in London, the South East, East Anglia, and the South West, while the North West and North of England continued to show marginally positive readings.

In the rental market, demand continues to outpace supply as more landlords exit the sector amid increasing regulation and higher taxes. A net balance of 14% of RICS members reported a rise in new tenant demand over the past three months, while new landlord instructions to list properties fell, and a net balance of 25% expect rents to rise in coming months.

The RICS report aligns with findings from Savills, which said it observed greater caution among buyers and sellers in its UK residential business since the onset of the Middle East conflict, resulting in longer completion timeframes and only a 1% year-on-year increase in first-quarter transactions.