Reeves’s post-budget bounce never came – now the Middle East conflict is giving the UK housing market another headache
The UK housing market was supposed to get a lift from Chancellor Rachel Reeves’s November 2025 budget, which deferred major tax hikes and sparked some initial optimism.
But that hoped-for rebound never materialised, with buyer demand slumping and prices staying stubbornly flat.
Now, the dramatic escalation of the Middle East conflict at the end of February 2026 has thrown another wrench into the works, stoking inflation fears and dashing hopes for imminent interest rate cuts.
According to the latest Royal Institution of Chartered Surveyors (RICS) Residential Market Survey for February 2026, new buyer enquiries fell sharply, with a net balance of -26% of respondents reporting a decline, down from -15% in January.
This marks a reversal of the tentative improvements seen earlier in the year, as geopolitical tensions and macroeconomic jitters take hold.
“Market confidence remains fragile, as intensifying macro headwinds cloud the outlook,” the report states, explicitly citing the “escalation of the conflict in the Middle East” as a key factor tempering momentum.
Agreed sales also weakened slightly, with a net balance of -12% in February, compared to -9% the previous month. While this is still better than the dire figures from much of 2025, the outlook is darkening.
Near-term sales expectations slipped to a net balance of -2%, the softest since November 2025, while twelve-month projections, though still positive at +17%, are down from +35% in January.
House prices at the headline level showed a net balance of -12%, indicating a broadly flat to slightly negative trend.
Regional differences
In London, prices are under significant pressure with a net balance of -40%, while the South East (-24%) and East Anglia (-26%) also lag the national average.
By comparison, Northern Ireland, Scotland, and the North West of England are bucking the trend with rising prices.
Looking ahead, near-term price expectations turned negative at -18%, and even the twelve-month view moderated to +33% from +43%.
In London, sentiment has flattened dramatically, with twelve-month expectations dropping to just +7% from +56%.
Post-Budget hope
The November 2025 budget had initially buoyed spirits. RICS data from January showed sales expectations hitting their highest since October 2024, fuelled by the end of tax speculation and prospects for Bank of England rate cuts.
Reeves’s measures, including £26 billion in deferred tax increases, were seen as stabilizing, but they fell short of direct stimulus for the housing sector.
Fast forward to her low-key Spring Statement on 3 March, and the property industry was left disappointed again. No new incentives for first-time buyers, no push for more housing supply, and Office for Budget Responsibility (OBR) forecasts predicting annual house price rises of 2.4% to 2.9% through 2030 – hardly the bounce many had anticipated.
Compounding these domestic woes is the Middle East turmoil. The conflict has sent oil prices surging and inflation expectations rising, prompting markets to bet against further Bank of England rate reductions anytime soon.
This is a blow for UK homebuyers, who had been eyeing lower mortgage rates. The OBR’s pre-conflict forecasts already had average mortgage rates climbing to 4.5% over 2027-2030, but the war’s fallout could push them higher.
The unwinding of the recent easing in mortgage interest rates poses a significant headwind,” the RICS report notes, linking it directly to greater inflationary pressures from the conflict.
