​UK house prices fall first time in 2026 as mortgage rates climb

The price of properties in the United Kingdom (UK) experienced a slight drop in May for the first time this year, caused by a fluctuation in the demand of properties by buyers caused by the war in Iran.

According to the reports,  the average price of a UK home fell by 0.6 percent compared with the previous month. The typical house price stood at £278,024, which is 1.7 percent higher than the same period last year, but represents a significant slowdown from the 3 percent annual growth recorded in April.

Robert Gardner, chief economist at Nationwide, said a “loss of momentum was to be expected” given the uncertainty caused by the conflict in the Middle East and the subsequent rise in energy prices and market interest rates.

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Mortgage costs have climbed across the market in recent months. Financial data provider Moneyfacts reported that by the end of May, the average two-year fixed rate reached 5.68 percent, while the average five-year fix stood at 5.63 percent.

Tom Bill, researcher at the estate agent Knight Frank, noted that the housing market was slowing down “at precisely the time of year when you would expect momentum to be building”.

“There won’t be a cliff-edge moment, but the impact of higher borrowing costs will erode spending power and squeeze house prices this year as mortgage rates agreed before the Middle East conflict gradually disappear,” he said.

Average house prices any fall by 2 percent

Savills, a UK estate agency company also revised its property forecast due to the conflict, predicting that average house prices will fall by 2 percent this year which is a sharp reversal from its previous forecast of a 2 percent rise.

However, Robert Gardner added that while market interest rates have risen, the impact on affordability has been modest so far.

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“Swap rates, which underpin fixed‑rate mortgage pricing, remain well below the highs reached in 2023 and are broadly in line with levels prevailing in 2024, implying only a partial reversal of earlier gains,” he said. “This provides some confidence that, if the latest shock passes relatively quickly, and energy prices normalise in the quarters ahead, any near-term softening in the housing market will also prove short lived.”

Other analysts remain cautious about the market’s resilience. Martin Beck, chief economist at WPI Strategy, said:
“Even if mortgage rates edge lower, the market remains vulnerable. Affordability is still stretched, mortgage repayments absorb a historically large share of household incomes, and a weakening labour market would pose a much greater threat to house prices than interest rates alone.”

The Bank of England is currently maintaining a cautious approach. Andrew Bailey, governor of the Bank of England, stated last week that the central bank was in no rush to change interest rates while the outcome of the war in Iran remains uncertain and UK economic growth stays weak.

 

The Bank’s Monetary Policy Committee last voted in April to keep its key interest rate on hold at 3.75 percent.