Housing market slows, as mortgage rates to stay high despite ceasefire

High mortgage rates are unlikely to deflate immediately even if the Iran ceasefire holds, property experts have warned, as rising rates stifle demand for houses.

The number of Brits enquiring to buy a new home fell even further in March, down from negative 29 per cent in February to minus 39 per cent last month, according to the Royal Institute of Chartered Surveyors (RICS).

Property experts say Brits are slowing housebuying plans to avoid rising mortgage rates, with the health of the market dependent on whether the Iran war reaches a sustained end.

Lenders have pulled mortgage deals en masse since the start of the conflict, with most sub-four per cent mortgages having been swiped off the market since the end of February.

The average rate of fixed mortgages has climbed above five per cent according to some metrics, the RICS said.

Interest rate fears slow housing demand

The Institute said the absence of favourable mortgage deals, combined with fears that the Bank of England could hike interest rates multiple times this year, is slowing the property market.

The 39 per cent of estate agents seeing buyer enquiries fall brings this metric to its weakest reading since August 2023.

Agreed sales deteriorated in March, dropping to a net balance of negative 34 per cent, down from minus 13 per cent in February. 

House prices are softening too as demand wanes, with 23 per cent of property professionals seeing average prices fall last month, up from 14 per cent in February.

A further 43 per cent of estate agents expect asking prices to deteriorate further in the next three months. 

Falling demand means property professionals are being swamped by unsold homes, with vacant stock making up 47 per cent of the average estate agent’s books, up from 45 per cent in January.

Mortgage rates ‘won’t snap back’ to February levels

President Trump’s announcement of a ceasefire on Tuesday night could offer hope that interest rate conditions will improve, and in turn boost property confidence.

But property experts Knight Frank said the Iran war has caused lasting damage to mortgage conditions in the UK.

Tom Bill, head of UK residential research, said: “Sentiment in the UK housing market will improve if the two-week ceasefire in the Middle East holds, supporting transaction levels as the spring market gets underway. 

“However, mortgage rates won’t snap back to where they were in February due to the longer-term inflationary impact of the war and the associated vulnerability of the government’s financial position.”

Tarrant Parsons, head of market research at the RICS, said: “The mood across the UK housing market has shifted markedly over the past couple of months. 

“What had been a cautiously improving picture for activity has been knocked off course by the wider macro fallout from the Middle East conflict, as the renewed deterioration in the mortgage rate outlook has proved particularly challenging.”