Middle East War Threatens UK Housing Market

The UK housing market is bracing for further challenges as the ongoing conflict in the Middle East threatens to worsen conditions. Berkeley Group, a prominent housebuilder, has issued a warning, citing the potential for increased inflation and interest rates due to geopolitical events. This concern is shared by other major developers like Vistry and Persimmon, highlighting a sector-wide apprehension.

In recent days, mortgage lenders removed 530 deals from the market, a direct consequence of the instability caused by the war. Consequently, the average two-year fixed mortgage rate has risen to 5.1%, its highest point since last July, with five-year deals also seeing a similar increase. These rising costs for homebuyers add pressure to a market already navigating economic uncertainty.

The construction sector itself, though showing a marginal 0.2% growth in January after a period of decline, remains subdued. Berkeley Group, while reaffirming its annual profit guidance, noted that trading has been constrained by consumer confidence impacted by geopolitical events and macroeconomic uncertainty. Despite this, the company reported improving sales enquiries and reservation values, hinting at some resilience.

Analysts point to the rising costs of building materials, such as bricks, which are becoming harder to pass on to buyers already struggling with higher mortgage rates. The surge in energy costs, linked to Middle East supply disruptions, is a key driver of material price increases and broader inflation fears. This scenario reduces the likelihood of the Bank of England cutting interest rates this year, further impacting the affordability of home loans.