UK housing market recovery set to be delayed amid Middle East conflict

A rebound in the UK housing market is likely to be delayed until 2028 as elevated mortgage rates continue to weigh on activity and property values, according to a new report.

Real estate firm Savills projects that house prices will rise by 15.8% – equivalent to an average cash increase of £56,500 – over the five-year period to 2031, with values beginning to recover in the second half of 2028.

The highest percentage growth over the five years is expected across northern England, Scotland and Wales, driven by relative regional affordability and economic fundamentals.

Savills added that evolving buyer demographics will also bolster demand for larger family properties.

Prior to the turnaround, house prices are expected to drift downwards through the rest of 2026 and across 2027, resulting in a peak-to-trough drop of roughly 3.0%.

Average mainstream values are predicted to fall by 1.5% in 2027 alone, as ongoing conflict in the Middle East dampens sentiment and keeps mortgage rates elevated for longer.

However, an improving economic outlook alongside better mortgage affordability should pave the way for a recovery starting in 2028.

Emily Williams, director of residential research at Savills said: "The drawn-out conflict in the Middle East has pushed back the prospect of meaningful mortgage rate relief, which will weigh on buyer sentiment and affordability.

"We expect this will suppress activity and put pressure on prices next year. But this is unlikely to trigger a sharper correction.

"Most homeowners have already absorbed higher borrowing costs since late 2022, with relatively few still needing to refinance directly from rates below 2%, and the labour market remains resilient.

"Together, these factors should keep forced sales low and limit further downward pressure on prices."

First-time buyers are expected to lead the market recovery from 2028, aided by deposit affordability and government support schemes.

Price growth is forecast to gather pace in the latter half of 2028, reaching 3.5% across the year overall.

Annual price gains are then predicted to reach 5.0% in both 2029 and 2030, before settling at 3.0% in 2031.

Dan Hill, residential research associate at Savills said: "Markets combining relative affordability with strong employment and investment prospects are expected to outperform, including Manchester, Leeds, Liverpool and Bristol, alongside well-connected commuter locations offering better value than their surrounding regions.

"Property type will also remain an important driver of performance.

"Demand for larger family homes continues to be supported by flexible working patterns and changing buyer demographics."

Savills anticipates the following average cash adjustments in the coming years:

2027, minus £5,500

2028, plus £12,500

2029, plus £18,500

2030, plus £19,000

2031, plus £12,000

The total percentage and cash growth predicted by Savills across regions by 2031 are as follows: