Housing market in England and Wales weakening due to Iran war, say estate agents

Fears of higher mortgage rates and rising inflation as a result of the Middle East conflict are leading to a subdued and downbeat housing market, according to estate agents.

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

Members have told the professional body that buyers and sellers are becoming more cautious, and many agents have cited clients who are worried about whether inflation and interest rates will rise 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 have to increase in the coming months as “higher inflation is unavoidable” because of the war in the Middle East and resulting jump in oil and gas prices.

At the same time, mortgage rates are likely to be affected by the current sharp rise in government borrowing costs, as swap rates – which lenders use to price their fixed-rate mortgages – tend to move in tandem with government bond yields.

Tarrant Parsons, head of market research and analysis at the 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.”

The RICS said a net balance of 34% of its members said inquiries from new buyers in April had fallen since the previous month. This is a slight improvement on the net balance of 40% who said inquiries had fallen in March, but still “indicative of weak market momentum”. The index measures the difference between the share of agents reporting rising and falling new buyer inquiries.

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 are pessimistic about this improving much over the next three months.