Knight Frank now expects UK house prices to increase by 1.5% this year, followed by 3% next year and 4% in 2028

Real estate consultancy Knight Frank has lowered its short-term expectations for UK house prices after the Middle East war fed through into mortgage pricing and buyer confidence.

The Middle East war has pushed mortgage rates higher, dampened buyer sentiment and fuelled speculation about how the government will respond to the resulting economic shock, said Tom Bill, head of UK residential research at Knight Frank. This hat-trick of headwinds means we have revised down our near-term house price forecasts.

The firm now expects UK house prices to increase by 1.5% this year, followed by 3% next year and 4% in 2028. In its September view, it had pencilled in 3% growth in 2026 and 4% the following year.

Knight Frank said the economic picture was still forming because the war, which began on 28 February, had only recently started to show up in the data. It pointed to diverging house price numbers, with Halifax reporting annual growth slowing to 0.8% from 1.2% in March, while Nationwide’s measure increased to 2.1% from 0.9%. It added that mortgage approval and transaction figures available so far pre-dated the war.

On inflation, the consultancy noted an increase in headline inflation in March, driven by higher energy costs, to an expected 3.3%. It said underlying inflation — excluding food and energy — came in lower than forecast at 3.1%, which could make the case for holding rates in April more likely.

In mortgage markets, the firm said swap rates used to price fixed-rate loans had moved higher since the war began. It reported the five-year swap rate trading at nearly 4% this week, compared with just under 3.5% before the war started, though it had eased from around 4.3% in March.