Knight Frank, the London-headquartered global property consultancy and estate agent, has downgraded its near-term UK house price forecast as rising mortgage rates and geopolitical uncertainty weigh on the market.
In its latest UK Housing Market Forecast (Q2 2026), the agency said it now expects house price growth of 1.5% this year, down from a previous estimate of 3%, reflecting what it described as a “hat-trick of headwinds”.
The downgrade follows the outbreak of the Middle East conflict on 28 February, which has pushed up borrowing costs, weakened buyer sentiment and created uncertainty around the government’s economic response.
Knight Frank now forecasts growth of 3% in 2027 and 4% in 2028, while striking a more optimistic tone over the longer term, with annual growth expected to exceed 5% by 2030.
MIXED ECONOMIC BACKDROP
House price indices are diverging, with Halifax showing growth slowing to 0.8% in March, while Nationwide reported an increase to 2.1%. Inflation has also ticked higher, reaching 3.3% due to rising energy costs, although core inflation came in lower than expected at 3.1%.
Swap rates have also risen sharply. The 5-year swap rate is currently around 4%, up from just under 3.5% before the conflict began, although it has eased from a peak of 4.3% in March.
Tom Bill (main picture, inset), Knight Frank Head of UK Residential Research, said: “The Middle East conflict has pushed mortgage rates higher, dampened buyer sentiment and fuelled speculation about how the government will respond to the resulting economic shock.
“This hat-trick of headwinds means we have revised down our near-term house price forecasts.”
UNDER PRESSURE
Prime markets are expected to come under pressure despite typically being less reliant on borrowing. Knight Frank forecasts prices in prime central London will fall by 2% this year, while prime outer London is expected to remain flat.
In the prime country market, covering £750,000-plus homes outside London, prices are forecast to fall by 2.5% in 2026, having already declined by 5.5% in the year to March.
Knight Frank said geopolitical uncertainty and speculation around potential tax changes are likely to keep demand subdued in these markets, marking a contrast with 2009 when global instability drove international capital into London.
GOVERNMENT HELP
However, the firm said longer-term prospects could improve depending on the direction of future government policy, particularly if measures are introduced to support affordability and stimulate demand.
It added that a shift in political direction after the next general election could help underpin stronger house price growth towards the end of the decade.
Read Tom Bill’s full analysis HERE.
