West Midlands financial adviser explains the impact of events in the Gulf

The coordinated US and Israeli military assault on Iran’s Islamic regime is sending shockwaves through global energy markets and raising fresh concerns about the prospects for the British housing market.

This comes just as economists had been cautiously optimistic about a gradual recovery in 2026.

With Iran’s retaliatory strikes threatening the Strait of Hormuz, through which approximately 20 per cent of the world’s oil supplies pass, Brent Crude prices surged from around $70 to over $80 per barrel within days of the first strikes. Analysts are warning of further rises if the conflict escalates and key shipping routes are closed for a sustained period.

It is against this volatile backdrop that the latest UK house price data has landed, with economists warning that the gains quietly building in the domestic property market could be derailed by forces entirely beyond Britain’s control.

Steady ground before the storm

The February reading of the Halifax House Price Index showed UK house prices grew by 1.3 per cent year-on-year. Average property prices have hovered just below the £300,000 mark, and transaction volumes have remained broadly resilient despite affordability constraints that continue to weigh on buyers, particularly first-time purchasers.

Until last week, the mood amongst housing economists had been one of measured optimism. Wage growth has been outpacing house price inflation since late 2022, steadily improving underlying affordability. The Bank of England’s gradual easing of interest rates and cooling inflation had been widely expected to provide further stimulus to demand throughout this year.

But the eruption of full-scale military conflict in the Middle East has changed the calculations considerably.

The conflict’s economic impact

Emeritus Professor Joe Nellis, economic adviser at MHA, which has a base in Birmingham, said: “The February reading of the Halifax House Price Index suggests UK house prices grew by only 1.3% year-on-year, consistent with the slow and steady trend of recent months.

“Price growth remains lower than it has been since mid-2024, but lower borrowing costs and cooling inflation should encourage house prices to rise again throughout 2026.

“However, this recovery could be undermined by the long-term effects of the conflict in the Middle East. Sustained increases in energy prices would risk reigniting inflation, adding to cost-of-living pressures and potentially forcing the Bank of England to keep interest rates higher for longer. This combination would weigh on purchasing power and raise mortgage costs, dampening demand and limiting further house price growth.

“Policymakers will be hoping this energy price shock is short-lived, and fears of monetary tightening are forgotten.

“House prices will continue to be upheld in some capacity by a chronic shortage of supply, particularly in areas of high employment and limited new construction. Nowhere is this more the case than in London, where severe undersupply is helping to prevent a more pronounced downturn in prices.

“The Government is not meeting its housebuilding targets and is failing to address the underlying structural issues in the housing market. Persistent undersupply continues to drive affordability pressures, limit labour mobility and widen generational divides. Without meaningful progress on planning reform and housing delivery, these pressures are unlikely to ease.”

A market caught between forces

Professor Nellis’s warning reflects a tension that will be familiar to those who have watched the British housing market navigate repeated external shocks in recent years. On one hand, the structural dynamics that have long propped up prices, principally a chronic shortage of homes relative to demand, have not diminished. On the other, the macroeconomic environment in which buyers, lenders and policymakers must operate has been thrown into fresh uncertainty by a conflict in a region that supplies a significant portion of the world’s oil.

The ripple effects of sustained energy price rises are well understood: higher fuel and utility bills eat into household budgets, reducing the purchasing power of prospective buyers; persistent inflation obliges the Bank of England to maintain or raise borrowing costs; and elevated mortgage rates price a further tranche of buyers out of the market or force sellers to accept lower offers.

Regional disparities are also likely to be sharpened by the conflict’s economic fallout. Markets in London and the South East, where supply constraints are most acute, may prove more resilient to demand-side shocks than those in areas where the labour market is less buoyant. Northern Ireland and Scotland, which have recorded the strongest annual price growth in recent months at 5.9 per cent and 3.8 per cent respectively, could see that momentum cool if consumer confidence falters.

Government under pressure

Beyond the geopolitical turbulence, the housing market faces persistent structural challenges of its own making. Housebuilding remains well below the targets set by the Government, and critics argue that the planning reforms promised by ministers have yet to translate into meaningful increases in supply. The chronic undersupply of homes in high-demand areas continues to inflate prices beyond the reach of younger generations and those on middle incomes, limiting labour mobility and entrenching inequality.

The combination of a government falling short on its housing delivery commitments and an external shock that threatens to keep mortgage rates elevated longer than expected represents a difficult environment for anyone seeking to enter or move within the property market.

For now, the Bank of England and Treasury will be watching developments in the Strait of Hormuz as closely as any of the more conventional indicators they rely upon. The duration and intensity of the US-Israeli campaign against Iran’s regime will determine in large part whether the modest recovery in British house prices seen at the start of this year can be sustained, or whether it becomes another casualty of the most significant Middle East conflict in a generation.