The property business says that the conflict in Iran and the rise in mortgage rates have affected the strength of the market, with flats in the South the worst affected by a property downturn.
Lucian Cook, head of residential research at Savills (pictured), said that despite a robust start to the year for both price growth and activity, the rise in mortgage rates since late February “has downgraded the short-term outlook”.
“Higher borrowing costs and weaker sentiment will weigh on demand through the remainder of 2026,” he said.
He added that there were also high levels of stock on the market, partly as landlords sell up in the face of the Renters’ Rights Act and other regulations. This will also place downward pressure on prices, particularly in London and the South East, he said.
Cook added: “However, several factors will cushion the impact of these headwinds. Affordability is less stretched now, compared with 2022, following a slower recovery in prices. While stricter mortgage regulation and the widespread use of fixed-rate mortgages continue to keep the risk of forced sales low. Overall, this points to a modest adjustment in nominal house prices, with the greatest pressure likely to come over the summer as interest rates peak.”
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Regional differences
Savills said the North of England, Scotland and Wales would outperform during the period of higher mortgage rates, because these areas are more affordable. Further South, Savills anticipates houses will outperform flats, amid continued caution from buyers around leasehold and building safety concerns.
“More affordable markets tend to be more resilient when borrowing costs rise, and we expect that to underpin outperformance across parts of the North, Scotland and Wales while mortgage rates remain elevated,” said Dan Hill, Savills research analyst. London prices are expected to fall 4% in 2026 according to the forecast, while areas such as the North East will remain flat and property prices in Wales and Scotland will fall 0.5%.
Medium-term hope
Despite the declines forecast, Savills believes the property market will recover swiftly in the medium term.
Over the five years to 2030, Savills expects average house prices to increase by 18.5% or £67,000. Again, regional disparities in recovery will remain though, with London rising just 10.6 by 2030 and Yorkshire & the Humber and the North West finishing the period up 25%.
