House prices fell for a third consecutive month in May, according to the latest Halifax House Price Index, as higher mortgage costs and growing economic uncertainty continued to weigh on buyer demand.
Average property values edged down by 0.1% during the month to £298,806, following a similar decline in April, although annual house price growth ticked up slightly from 0.4% to 0.5%.
The latest figures come amid heightened global uncertainty following the conflict between Iran and Israel, which has pushed up wholesale energy prices and contributed to rising mortgage rates. Some property market commentators believe the changing economic backdrop is beginning to alter expectations across the housing market.
“The Middle East conflict that erupted in late February has reset the macro backdrop: mortgage rates have risen, the Bank of England has shelved rate cuts, consumer confidence has weakened, and the spring selling season has disappointed. For housebuilders, this is not a crisis, but it is not a clean bill of health either.
“The sector entered 2026 with genuine hope; the Iran conflict has disrupted that narrative in a way that is hard to fully quantify but is clearly visible in share prices and consensus estimates.”
In response to deteriorating market conditions, a growing number of estate agency groups are revising their house price forecasts for 2026.
Savills has become one of the most bearish forecasters, cutting its outlook from 2% growth to a 2% decline in average UK house prices this year. The revised forecast reflects concerns over affordability, higher mortgage costs and increased economic uncertainty.
Knight Frank has also downgraded its expectations for the market. However, unlike Savills, the agency still expects house prices to end 2026 in positive territory, albeit with only modest growth.
Tom Bill, head of UK residential research at Knight Frank, commented: “The seasonal spring bounce in the property market has fallen flat this year. Prices and transaction volumes have been squeezed by higher mortgage rates due to the Middle East conflict and the inflation signals suggest that borrowing costs won’t drop meaningfully in the short term.
“Uncertainty around the political direction of the government and whether any future Chancellor could raise taxes further may also keep demand in check, which means we expect minimal UK house price growth of 1.5% this year.”
The revisions come as a widening gap emerges between buyer budgets and seller expectations, with higher borrowing costs continuing to limit purchasing power and placing greater pressure on asking prices.
Chris Hodgkinson, managing director of House Buyer Bureau, said: “The biggest gap in today’s market isn’t between supply and demand, it’s between buyer budgets and seller expectations.
“Buyers are continuing to move, but they’re negotiating harder than they have for years and they’re unwilling to overpay. Sellers who remain anchored to yesterday’s market values risk spending longer on the market and accepting a lower offer further down the line.”
The concern for agents is whether that gap continues to widen in the second half of the year, placing further downward pressure on house prices despite a relatively resilient level of market activity.
Iain McKenzie, CEO of The Guild of Property Professionals, believes there are reasons for cautious optimism.
He commented: Inflation has eased from recent highs, and although expectations of future rate cuts have become less certain, lenders have continued to reduce mortgage rates in recent weeks as competition for business intensifies. This is providing welcome support for affordability and helping buyers who have been waiting on the sidelines.
“At the same time, an increase in the number of homes coming to market is creating greater choice for purchasers and helping sustain activity levels. That said, buyer demand remains softer than a year ago and many households are still carefully assessing their finances, meaning realistic pricing will remain critical for sellers.
“Looking ahead, the market appears well balanced rather than booming or declining. Transaction levels are holding up in line with seasonal expectations, but ongoing uncertainty surrounding inflation, interest rates and wider global events means the housing market is likely to continue its steady, measured path through the remainder of 2026.”
