Did the Iran conflict just stall Britain’s housing market?
Key Points
- Net mortgage borrowing fell to £2.9bn in May, down from £4.4bn in April
- House purchase approvals dropped to 56,200, lowest since December 2023
- Remortgaging approvals fell to 33,300 from 51,200
- Households deposited £5.4bn, with £3.1bn into ISAs
- Quilter links the slowdown to Iran conflict uncertainty, says demand is delayed not cancelled
Britain’s housing market went cold in May, and the timing is hard to ignore.
Bank of England figures published on 29 June show net mortgage borrowing fell to £2.9bn, down from £4.4bn in April and well below the £5.1 billion average over the previous six months. It was the weakest month for net mortgage lending since May 2025.
The approvals data is bleaker still. Net mortgage approvals for house purchases, the clearest read on where borrowing goes next, dropped to 56,200 from 66,000 in April, the lowest count since December 2023. Remortgaging approvals fell harder, sliding to 33,300 from 51,200.
So what spooked buyers? The obvious culprit is money. The effective rate on newly drawn mortgages climbed to 4.22% in May from 4.08%, nudging borrowing costs back up just as households weighed whether to commit.
But Ian Futcher, Financial Planner at Quilter, points the finger somewhere less predictable: the Middle East.
Futcher argues May captured a period of real uncertainty over whether a ceasefire in the Iran conflict would hold, and that backdrop weighed on a market acutely sensitive to interest rate expectations.
The logic runs through inflation: geopolitical risk feeds fears about energy prices, energy prices feed inflation, and inflation feeds the borrowing costs that decide whether a mortgage is affordable. Faced with that chain, Futcher says, buyers delayed rather than cancelled.
It’s a tidy theory, and the savings data lends it weight.
If households were genuinely panicking, they’d be hoarding cash defensively. Instead, they were depositing with intent: £5.4 billion flowed into banks and building societies in May, with £3.1 billion going into ISAs and £1.3bn into time deposits as savers chased better rates.
The effective rate on new time deposits rose to 4.26% from 4.07%. That’s not fear. That’s people parking money sensibly while they wait for the property picture to clear.
Where that leaves things
- Demand looks deferred, not destroyed, on the evidence of firm savings flows
- Mortgage pricing is the swing factor, and it’s still creeping up
- A durable ceasefire could pull rates down as markets reassess inflation, Futcher says
- Affordability remains stretched, so any easing is gradual, not a switch
So, did the Iran conflict stall the market? Not on its own.
Rates were already the gravitational force, and the conflict simply added a layer of risk that made waiting the rational choice.
The more likely answer is that May was a market holding its breath, and what happens next depends less on Tehran than on whether mortgage pricing finally starts to fall.
