Could house prices fall by 5% in 2026?
The Iran war is causing house prices to slide as higher mortgage rates hit buyer confidence. Some experts believe they could fall by as much as 5% in 2026.
UK house prices have fallen and the negative trend could worsen before the end of the year, experts warn.
The latest house price index (HPI) data from Nationwide reveals property values fell by 0.6% in May to £278,024, compared with the month before.
Meanwhile, the building society said annual house price growth slowed to 1.7%, down from 3% in April.
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Robert Gardner, chief economist at Nationwide, blamed the fall on the conflict in the Middle East, which has seen mortgage rates rise and consumer confidence hit.
Data firm Moneyfacts says the average interest rate on a two-year fixed mortgage deal is 5.68% as of 1 June, up from 4.83% on 27 February, a day before the US and Israel launched strikes on Iran.
Gardner said: “Given the uncertainty caused by developments in the Middle East and the subsequent rise in energy prices and market interest rates, some loss of momentum was to be expected.”
Nationwide is not the only major lender to show a month-on-month fall in house prices since the outbreak of tensions in the Middle East. The Halifax house price index reported a 0.5% fall in the month to March 2026 and a further 0.1% drop in the month to April.
Meanwhile, the latest data from the Office for National Statistics shows the average UK house price fell from £269,204 to £268,132 between February and March 2026.
Could house prices fall further in 2026?
Lenders, experts and economists were relatively optimistic about the prospects for future UK house price growth at the start of 2026, but tensions in the Middle East have tempered any positivity.
The latest RICS UK Residential Market Survey suggests higher mortgage rates have weighed down on buyer demand.
There’s also a glut of homes on the market. According to Rightmove, the number of homes for sale is at its highest level for this time of year since 2015.
This is being reflected in asking prices. Rightmove’s latest HPI shows average asking prices were 0.3% lower in May 2026 compared to the same month a year ago.
Estate agents Savills is now predicting house prices to fall by 2% in 2026, revised down from a forecast made in December 2025 of 2% growth.
In London, house prices could fall by as much as 4% and 3.5% in the South East and East of England, Savills suggested.
Meanwhile, Deutsche Bank is expecting property values to drop by between 3% and 5% this year.
Sanjay Raja, UK chief economist at the bank, said the Iran conflict had “likely put an end to any hopes of an imminent housing market recovery” in 2026.
Even economists and estate agents that are more upbeat in their predictions have revised down earlier forecasts.
Estate agent Knight Frank is now expecting property values to increase by 1.5% in 2026, down from a previous estimate of 3% made in September 2025.
Tom Bill, head of UK residential research at Knight Frank, said he expected “continued downward pressure” on housing transaction activity as lower interest mortgages drop off the market.
Economic research firm Pantheon Macroeconomics has also forecast prices to increase by just 1% in 2026, down from a previous estimate of 3%.
We reveal whether it’s a good time to sell a house in another article.
