Iran Conflict Triggers Mortgage Market Turmoil, Dampening UK Housing Demand
The outbreak of war in Iran has sent shockwaves through the UK housing market, triggering a sharp rise in mortgage rates and causing prospective buyers to adopt a cautious "wait and see" approach. According to the latest Zoopla house price index, buyer enquiries plummeted by 13 per cent in March compared to the same period last year.
Mortgage Deals Withdrawn as Rates Climb
Mortgage lenders have responded to the geopolitical instability by aggressively pulling products from the market. Since the start of March, nearly 1,500 residential mortgage deals have been withdrawn, representing a contraction of almost 20 per cent in available options for borrowers. Concurrently, the average mortgage rate has increased by 0.4 per cent over the last month, directly impacting affordability.
"The Iran war has shaken confidence in the housing market," the report states, noting that the market is becoming increasingly reliant on a smaller, more committed group of buyers. While the number of sales agreed in March fell by a more modest two per cent year-on-year, the shrinking pool of active buyers is altering market dynamics.
Competition is lessening as the buyer pool contracts, granting those who proceed with transactions greater negotiating power. However, Zoopla warns that worsening affordability will disproportionately affect buyers requiring larger loans, as the conflict continues to exert upward pressure on borrowing costs.
London Market Stalls Amid National Growth Slowdown
The capital's housing market continues to underperform the national average. London house prices fell by 0.2 per cent year-on-year, contrasting with overall UK growth of 1.3 per cent. The strongest price increases were recorded in Northern Ireland (7.2 per cent), the North West (3.5 per cent), and the North East (2.8 per cent).
Richard Donnell, Executive Director at Zoopla, commented on the bifurcated market: "Some early-stage buyers are adopting a wait and see approach, but there is a sizable group of committed buyers who are pressing ahead with housing purchases. If mortgage rates stabilise at current levels, we expect sales activity to continue to hold up well compared to last year. Further increases in borrowing costs could weaken demand and impact sales volumes later in the year."
Industry Calls for Government Intervention
Timer Aboody, Director of specialist lender MT Finance, emphasised the demand crisis: "While the average house price remains steady, the fall-off in demand is of far greater importance. We have seen a lack of desire from the government to help kick-start or boost the property market, and if anything, it has helped create even tougher conditions."
The stagnation is further compounded by a critical shortage of affordable housing, which housebuilders warn is suppressing demand for new homes and slowing construction. Despite a government pledge to build 1.5 million homes by the next general election, the Treasury watchdog has indicated that planning reforms have yet to stimulate the sector.
In response, some housebuilders are urging the Labour Party to introduce a new loan-to-buy scheme designed to assist first-time buyers. Such a measure, they argue, would help rejuvenate the construction industry and revitalise the housing sales market during this period of geopolitical and economic uncertainty.
