UK housing market to stagnate as Middle East conflict raises borrowing costs, says RICS

The 12-month outlook for 2026 has turned from positive to “broadly flat” amid the ongoing Middle East conflict, according to the RICS.

The group’s UK residential market survey for March found it “losing momentum” as rising borrowing costs due to wider geopolitical uncertainty has knocked buyer confidence and sales activity.

New buyer enquiries fell to a net balance of -39%, down from -29% last month, marking the lowest reading since August 2023.

Net balance refers to the proportion of respondents reporting a rise in a metric minus those reporting a fall. For example, if 30% reported an increase in new buyer enquiries and 5% reported a fall, the net balance would be +25%.

Meanwhile, agreed sales fell to a net balance of -34% from -13% in February.

Tarrant Parsons, RICS head of market research and analysis, said: “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.

“Indeed, with average fixed rates climbing back above 5% according to some sources, it is unsurprising that buyer demand has softened. The path ahead hinges on whether or not recent surges in oil and energy costs begin to reverse in what remains a highly uncertain geopolitical environment.“

Short-term sales expectations saw a sharp month-on-month fall to -33% from -4%, while sales expectations for the 12 months ahead slipped to -1%, which RICS said suggests a “broadly flat market rather than the modest recovery view seen previously.”

Christopher Clark, chartered surveyor at Ely Langley Greig, said: “It’s impossible to know what is happening to the residential market at the moment. Only time will tell whether the Middle East conflict escalates or reaches a resolution, and the outcome of that war will determine how the market performs in the months and possibly years to come.”

House prices are also declining, with the price balance falling to -23% in March, down from -14% and -10% in the previous two months, while the year ahead is expected to bring “little overall price growth” at +2%.

Regionally, London, East Anglia, the South-east and the South-west all posted weaker price readings than the national average, while Scotland and Northern Ireland continued to report rising prices.

However, the lettings market “remained more resilient but continued to reflect a mismatch between demand and supply” where tenant demand rose to a net balance of +10% while landlord listings stayed negative at -25%.

Survey respondents expect this imbalance to keep pushing rents higher, with near-term rental expectations rising to +29%.

However, Tony Dobbins, managing director at Anthony Jones Properties, highlighted positivity in the north of England. He said: “North-east prices up 2.8% annually, outperforming the UK average of 1.3%. Mainstream demand remains solid; premium stock above £400k requires pricing discipline. Rising mortgage rates are cooling early enquiries but committed movers continue to transact across our region.”

The RICS residential market survey is a monthly sentiment survey of chartered surveyors who operate in the residential sales and lettings markets.