House prices fell last month as the property market was hit by the Iran war and Angela Rayner’s crackdown on landlords.
Property values dropped by 0.6pc between April and May, according to the Nationwide house price index, marking the first decline this year.
The value of the average home dropped to £278,024 as mortgage rates surged and growing numbers of landlords exited the market.
The downturn came as the Renters’ Rights Act came into force, giving tenants more protections against eviction.
Many landlords have left the market as a result of the reforms, which were championed by former deputy prime minister Ms Rayner. It has resulted in a flood of new homes coming onto the market, depressing sales values.
Chris Barry of property lawyers Thomas Legal said: “The Renters’ Rights Act enforcement has certainly sparked a wave of new stock to the market as independent and accidental landlords exit the market. This could drive a reduction in house prices as supply starts to outpace demand.
“I’m having conversations with landlords on a daily basis who are deciding to cash in on their investment and put their money elsewhere which is lower risk and a smaller demand on their time.”
Rob Wood of Pantheon Macroeconomics said: “Any increase in supply of properties for sale from landlords would likely weigh on house prices over time, and also of course boost rents.”
The drop in house prices was much steeper than the 0.2pc fall expected.
Mortgage rates have surged since the start of the Iran war, with the typical two-year fixed deal at 5.68pc on Friday, compared to 4.83pc at the end of February.
In May, a typical buyer has had to pay 37pc of their salary on their mortgage, which is nearly 10 percentage points higher than the pre-pandemic level of 28pc, according to Hamptons.
The Iran war has forced the Bank of England to keep interest rates on hold at 3.75pc, effectively tightening financial conditions because traders had expected rate cuts this year.
Robert Gardner, chief economist at Nationwide, said the conflict had also hit confidence in the housing market.
He said: “Given the uncertainty caused by developments in the Middle East and the subsequent rise in energy prices and market interest rates, some loss of momentum was to be expected.”
Ashley Webb, senior UK economist at Capital Economics, said: “House prices are more likely to weaken a bit further over the coming months than strengthen.”
Signing off...
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Thanks for following our live updates on the downturn in Britain’s house prices.
Before we go, a quick look at financial markets shows the FTSE 100 is down 0.8pc after a report that Iran will halt exchanges with the US.
Brent crude oil has jumped 4.1pc to nearly $95 a barrel, while US stock markets have opened in the red.
The Dow Jones Industrial Average is down 0.4pc, the S&P 500 is down 0.2pc and the Nasdaq Composite is little changed.
You can follow the latest on the US-Iran talks here.
Borrowing costs rise as US-Iran deal yet to materialise
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The cost of government borrowing edged higher around the world as the US and Iran remained in talks to end the Middle East conflict.
The yield on 10-year gilts, a benchmark for what the Treasury pays to borrow in financial markets, edged up to 4.83pc, although it remains well below its Iran war high of 5.19pc.
It stood at 4.23pc the day before the conflict broke out at the end of February.
Two-year swap rates, which are used to price mortgages, edged up to 4.14pc, while five-year swaps climbed to 4.17pc.
US stocks unfazed by Iran war
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The Middle East conflict is causing turmoil in Britain’s housing market but there are few signs of Iran war jittered on Wall Street.
US stock indexes are on track to open higher as the latest AI schemes by Nvidia and Microsoft fuel a boom in tech companies.
Nvidia rose 2.4pc in premarket trading after the world’s most valuable company unveiled a new chip, which brings AI capabilities to laptops and desktops.
Nvidia chief executive Jensen Huang said the chip is a result of a three-year partnership with Microsoft to “reinvent the PC” for the AI era. Microsoft shares added 3.3pc.
Other PC chipmakers dropped. AMD and Intel fell more than 4pc each, Apple dipped nearly 1pc and Qualcomm tumbled 8.6pc.
Wall Street’s main indexes closed May at record highs, buoyed by hopes of an eventual end to the war and blowout first-quarter earnings.
Optimism around AI has helped boost US stocks, but concerns over the economic impact from the hostilities remain.
In premarket trading, the Dow Jones Industrial Average was up 0.3pc, the S&P 500 rose 0.2pc and the Nasdaq 100 was up 0.1pc.
Many petrol retailers increasing margins, says watchdog
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Petrol retailers have maintained their fuel margins at historically high levels during the Iran war, the competition watchdog has found.
Retailer margins in many cases increased slightly in April, the Competition and Markets Authority found, even as wholesale costs soared.
The regulator has stepped up its statutory monitoring of petrol and diesel prices since the start of the conflict.
It said it would usually expect retailers to cut prices to try to win market share but said many had instead adopted “passive pricing policies”.
“We have some concerns about persistently high and in some cases increasing margins in April,” it said in its latest road fuel monitoring report.
“Whilst this may reflect continued wholesale price volatility driving continued high retail prices, high retail prices and the increase in ppl margins in April could also result from weak price competition including the continued use of passive pricing strategies by retailers rather than retailers responding promptly to four wholesale price movements and/or trying to win market share by reducing retail prices.”
It added: “Overall, our analysis indicates that elevated wholesale prices continue to explain most of the increase in pump prices in March and into April and we have not seen evidence of retailers actively changing their pricing strategies to take advantage of
the crisis.”
UK stocks fall as doubts grow over US-Iran talks
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The FTSE 100 fell as the world awaits news on talks between the US and Iran on ending the Middle East conflict.
The UK’s flagship stock index was down 0.2pc after data showed the Iran war had pushed down house prices by driving up mortgage rates.
Economists have warned an extended conflict would keep borrowing costs higher and threaten to push down house prices. Property developers were down 0.3pc.
The domestically focused FTSE 250 was down 0.1pc.
ME Group International plunged 28.2pc to a more-than-three-year low after the instant-service equipment group cut its profit forecast for 2026, as a shift in consumer spending patterns due to the Middle East conflict hurt its revenue in April.
Wise’s London-listed shares tumbled 13.9pc after a report by the Bureau of Investigative Journalism said the money transfer company is being investigated by prosecutors in Belgium over €500m (£433m) worth of suspicious transactions.
Bluefield Solar Income Fund surged 15.9pc to lead the UK’s mid-cap index after power group Drax agreed to buy the renewable energy-focused investment company in a deal valued at about £561m. Drax’s shares rose 1.8pc.
EasyJet was up 9.3pc after US investment firm Castlelake said it was considering a potential takeover bid for the British budget airline. EasyJet called the bid “highly opportunistic”.
Meanwhile, energy stocks, including BP and Shell, rose about 1pc each, tracking higher oil prices.
Britain’s housing wealth is in danger of collapsing
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In case you missed this, our economics correspondent Melissa Lawford and property correspondent Pui-Guan Man offered an insightful take on the housing market in our weekend essay.
Read why the property price gravy train has come off the tracks and the consequences will be painful.
Pound edges higher as US-Iran ceasefire talks continue
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The pound inched higher as traders waited to see if the US and Iran would announce a deal to extend their ceasefire and reopen the Strait of Hormuz.
Sterling was up 0.1pc against the dollar at $1.346 and rose 0.2pc versus the euro to €1.155 as Donald Trump insisted talks between Washington and Tehran would “work out well”.
The pound has been supported by the Bank of England holding interest rates at 3.75pc during the conflict. Traders are pricing in a rate hike by the end of the year as the war threatens to push up inflation.
Tommy von Brömsen, an analyst at Handelsbanken, said: “The pound has been quite resilient during the war.
“What has supported the pound is the level of interest rates. Britain has a higher interest rate than most other countries.”
Analysts warned the next move in markets would depend on the outcome of peace talks in the Middle East.
Jim Reid, an analyst at Deutsche Bank, said: “We could have said this a week ago, but it really feels like the next few hours and days will be critical.”
Petrol prices hit three-and-a-half year high
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In a further sign of the pressure on households, petrol prices have risen to their highest level in three and a half years, according to the AA.
The motoring group said the average price for a litre of unleaded had reached 159.6p last week, its steepest since November 2022.
By contrast, diesel prices have fallen to 184.2p a litre, down from a peak of 192.4p in mid April. During the early part of the Ukraine war in July 2022, diesel set a record of 199.1p a litre.
Smaller landlords ‘spooked’ by Rayner reforms
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Angela Rayner’s renters reforms have prompted many private landlords to sell up, economists and mortgage brokers have warned.
Justin Moy, managing director at EHF Mortgages, said landlords have been preparing for some time for the Renters’ Rights Act (RRA), which came into force in May.
The reforms include the abolishing of Section 21 no-fault evictions and end fixed-term tenancies.
Mr Moy said: “In particular, the smaller landlords, those with fewer than four properties have been hit the hardest, with properties barely covering their costs before the RRA took effect.
“With the need for social housing at record highs, rental properties have never been more in demand, yet we are determined to penalise landlords who, in the main, support a significant element of the government’s needs.”
Jamie Alexander of Alexander Southwell Mortgages added: “The abolition of Section 21 no-fault evictions and the shift to rolling periodic tenancies have genuinely spooked a lot of smaller landlords and I’m seeing that play out with clients.”
Ashley Webb of Capital Economics said Ms Rayner’s reforms would prompt some private landlords to sell.
This would “increase the supply of homes for sale on the homebuying market and weigh on house price growth”, he said.
However, he said the fall in property prices in May was “probably had more to do with the recent jump in mortgage rates”.
Rob Wood of Pantheon Macroeconomics added: “I very much doubt landlord behaviour would have affect prices significantly in May alone.
“In any case, house prices are growing strongly on the Nationwide’s measure if we smooth through noise, up 2pc in the four months to April. So I would say there is little evidence from the Nationwide data of a hit from renters rights.
“That said, any increase in supply of properties for sale from landlords would likely weigh on house prices over time, and also of course boost rents.”
Rent reforms ‘driving reduction in house prices’
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House prices fell last month as the property market was hit by Angela Rayner’s rent reforms.
The value of the average home dropped to £278,024 as mortgage rates surged and growing numbers of landlords exited the market.
The downturn in prices also came in the same month that the Renters’ Rights Act came into force, giving tenants more protections against eviction.
Many landlords have left the market as a result of the reforms, championed by former deputy prime minister Ms Rayner.
Rob Wood of Pantheon Macroeconomics said: “Any increase in supply of properties for sale from landlords would likely weigh on house prices over time, and also of course boost rents.”
Chris Barry of property lawyers Thomas Legal said: “The Renters’ Rights Act enforcement has certainly sparked a wave of new stock to the market as independent and accidental landlords exit the market.
“This could drive a reduction in house prices as supply starts to outpace demand. I’m having conversations with landlords on a daily basis who are deciding to cash in on their investment and put their money elsewhere which is lower risk and a smaller demand on their time.”
Factory prices surge as Iran war pushes up energy costs
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Manufacturers reported the fastest rise in input price inflation in nearly four years as the energy shock from the Iran war pushes costs higher.
Britain’s manufacturing companies reported rising prices for chemicals, plastics and food as the impact of soaring energy costs hits businesses.
Oil and gas prices have climbed significantly since the outbreak of the conflict in the Middle East and the closure of the Strait of Hormuz. The crucial waterway transports around 20pc of the world’s oil and gas.
Companies have warned the significant increase in their energy and input costs is causing them to raise prices for customers.
Figures from S&P Global also showed that manufacturers’ increase in selling prices rose at the fastest pace since July 2022, and was the second steepest rise on record.
The S&P Global UK PMI for the manufacturing sector climbed to 53.9 in May, up from 53.7 a month earlier.
However, Rob Dobson, director at S&P Global Market Intelligence, warned that the expansion of the manufacturing sector “remains in doubt”.
He added: “The recent upturn in new order intakes that is driving the expansion in output is heavily reliant on both manufacturers and their clients front-loading purchases to mitigate expected war-related price increases and supply chain disruption.”
‘Britain’s housing market is a pyramid scheme’
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It is immoral to expect skilled workers to pay six to nine times their income to buy a house, Telegraph readers have said after the latest drop in prices.
Here are some views from the comments section below and you can join the debate here.
Housebuilding stocks fall after prices blow
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Housebuilders slumped on UK stock markets after Nationwide figures showed property prices fell by 0.6pc between April and May.
Bellway slumped 1.4pc while Persimmon fell 0.6pc and Berkeley dropped by 0.5pc.
Anthony Codling, an analyst at RBC Capital Markets, said: “The culprit is no mystery: the conflict in the Middle East has pushed energy prices and market interest rates higher, drained consumer confidence and made mortgage pricing unpredictable.
“The housing market has not fallen off a cliff, but it is clearly looking over the edge.”
He added: “For the UK housebuilders, the May Nationwide data is not the outright disaster that some feared, but it is not a clean bill of health either.
“The sector entered 2026 with genuine hope that it was turning a corner: inflation was easing, mortgage rates were declining, Help to Buy memories were fading and the government’s planning reform agenda offered some longer-term structural support.
“The Iran conflict has disrupted that narrative in a way that is hard to fully quantify at this stage but is clearly visible in both the trajectory of share prices and consensus estimates.”
Higher borrowing costs will squeeze prices, warn estate agents
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The increased cost of getting a mortgage will lead to lower house prices, estate agents have warned.
Mortgage rates have jumped since the start of the war in Iran, as traders bet that the Bank of England will be forced to raise interest rates to contain inflation.
Tom Bill, head of UK residential research at Knight Frank, said: “This is further evidence that the housing market slowed down at precisely the time of year when you would expect momentum to be building.
“There won’t be a cliff-edge moment, but the impact of higher borrowing costs will erode spending power and squeeze house prices this year as mortgage rates agreed before the Middle East conflict gradually disappear.”
Nathan Emerson, chief executive of estate agent body Propertymark, said: “Many households are continuing to carefully assess affordability before making decisions, particularly as mortgage costs remain higher than many borrowers have become accustomed to over recent years.
“However, steady pricing can help support confidence and encourage more balanced negotiations between buyers and sellers.”
Jason Tebb, president of online portal OnTheMarket, added: “The fallout from the war in the Middle East is making itself felt, with uncertainty and the challenging economic backdrop resulting in a softening in the market and some loss of momentum.
“That said, the housing market continues to demonstrate resilience. Average prices dipped on a monthly basis as focused, price-sensitive buyers negotiate hard, while sellers realise that they will struggle to sell over-ambitiously priced homes.”
Drop in prices ‘early sign of more challenging conditions’
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Britain’s housing market faces more challenging conditions this year and cannot rely on falling interest rates to cushion the blow from the Iran war, an economist has warned.
Martin Beck, chief economist at WPI Strategy, said the data “underline the pressure facing buyers” after prices fell by 0.6pc between April and May.
He said: “Weak consumer confidence, sluggish income growth and mortgage rates that remain far above the ultra-low levels seen for much of the last decade-and-a-half are continuing to weigh on affordability.
“While those headwinds make it hard to see house prices returning to consistent growth in the near-future, the US-Iran ceasefire and recent diplomatic developments have reduced the risk of a more severe shock to inflation, borrowing costs and the housing market.
“Oil prices have fallen back, suggesting that while inflation is likely to rise over the next few months, the increase may prove short-lived. That should allow the Bank of England to resist any pressure to raise rates, and has already been reflected in a dip in new fixed-rate mortgage costs.
“But even if mortgage rates edge lower, the market remains vulnerable. Affordability is still stretched, mortgage repayments absorb a historically large share of household incomes, and a weakening labour market would pose a much greater threat to house prices than interest rates alone.
“The crucial difference from previous periods of economic uncertainty is that the housing market can no longer rely on falling interest rates to cushion the blow. That support helped prices navigate Brexit, the pandemic and other shocks. If unemployment rises and growth disappoints, today’s modest fall could prove an early sign of the more challenging market conditions likely to emerge during the rest of 2026.”
Higher borrowing costs to ‘bear down’ on housing market
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House prices will grow at a slower pace over the rest of the year as the Iran war pushes up the cost of borrowing, economists said.
Rob Wood, chief UK economist at Capital Economics, said: “House prices fell by more than expected in May according to Nationwide, as homebuyers retreated to the sidelines to await clarity over where interest rates would go over the coming year.”
“Higher borrowing costs will continue to bear down on housing market activity over the coming year.
“We estimate that the interest rate on a two-year fixed rate 75pc LTV mortgage will settle at 5pc by the end of the year, up from 4pc in February before the war began. Accordingly, we continue to expect official house prices to gain just 1pc in the fourth quarter of 2026.”
However, he added: “Our main takeaway from the housing market data released since the war in Iran started is that the market has held up better than expected.”
FTSE 100 falls after US strikes on Iran
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The UK’s stock markets were mixed at the start of the week as Donald Trump told the US to “just sit back and relax” after launching fresh strikes on Iran.
The FTSE 100 fell 0.2pc to 10,388.90 after the US conducted “self-defence strikes” on Iranian radar and drone control sites in Iran’s Goruk and Qeshm Island on Saturday and Sunday.
However, the domestically focused FTSE 250 rose 0.3pc to 23,401.74.
House prices to ‘weaken in coming months’
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House prices will fall further in the months ahead as the Iran war resilience of the property market to higher mortgage rates begins to fade, economists said.
Ashley Webb, senior UK economist at Capital Economics, said the latest drop “provides further evidence that the leap in mortgage rates since the start of the Iran war is denting house price growth”.
He said: “Admittedly, some of May’s fall in prices was probably due to borrowers pulling forward activity into March and April to lock in a mortgage rate before further rises.
“So underlying price growth in May may not be quite as soft as these data suggest.
“Even so, with prices also falling on both the alternative Halifax and official ONS measures in recent months, it’s clear that the jump in mortgage rates is hurting the housing market.
“House prices are more likely to weaken a bit further over the coming months than strengthen.”
Iran war deals ‘modest impact’ on mortgage affordability
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Nationwide insisted the Middle East war had delivered a “modest” hit to mortgage affordability so far, although the scale of its impact on the economy would depend on how swiftly the US and Iran bring an end to the conflict.
Chief economist Robert Gardner said: “There has been some positive news, in that the UK economy entered this shock on a slightly stronger footing than expected. The economy grew by a healthy 0.6pc quarter on quarter in the first three months of the year, while inflation softened more than expected in April.
“Nevertheless, economic growth is likely to be somewhat weaker and inflation higher than previously expected this year as a result of developments in the Middle East, although the impact will ultimately depend on the duration of the shock and the policy response.
“The UK economy and housing market have proved remarkably resilient in recent years. Household finances are solid, with total household debt at its lowest level relative to income for around two decades, and sizeable savings buffers have been built up, though these are not evenly distributed across households.
“Moreover, housing affordability had been improving steadily in recent years due to a combination of income growth outpacing house price growth by a wide margin and a modest decline in borrowing costs.
“While market interest rates have risen in recent months, the impact on affordability has so far been modest. Indeed, swap rates, which underpin fixed‑rate mortgage pricing, remain well below the highs reached in 2023 and are broadly in line with levels prevailing in 2024, implying only a partial reversal of earlier gains.
“This provides some confidence that, if the latest shock passes relatively quickly, and energy prices normalise in the quarters ahead, any near-term softening in the housing market will also prove short lived.”
Good morning
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Thanks for joining me. House prices fell last month for the first time this year as the Iran war pushed up mortgage rates. Here is what you need to know.
5 things to start your day
- Reeves’s salary sacrifice raid to leave almost three million poorer | Over half a million affected are basic rate taxpayers despite Treasury claims move will only hit high earners
- Facebook and Instagram profiting from adverts promoting deadly ‘frog poison’ drug | Kambo was recently linked to the death of a British man in Leicester
- Homeowners face £3,000 mortgage jump after Iran crisis | Monthly payments will surge for thousands coming to the end of their fixed price deals
- Parties lose their sparkle after Iran war hits balloon supplies | Qatar is unable to export helium because of the closure of the Strait of Hormuz
- London’s growing childlessness crisis | Birth rates are dropping but young parents still can’t find nursery spots
What happened overnight
Asian stock markets rose as the AI boom continued to drive demand.
However, oil prices rose after fresh attacks in the Gulf that challenged optimism about a re-opening of the Strait of Hormuz.
While negotiators from Washington and Tehran are apparently working to hammer out a deal, Donald Trump had been silent on their progress until posting that everyone should “just sit back and relax”.
Speaking on Saturday, Defense Secretary Pete Hegseth said the US was ready to restart attacks on Iran if a deal could not be reached. Indeed, news came Monday that US forces had struck Iranian targets over the weekend and Tehran had hit back, while Kuwaiti defences were reportedly intercepting missile and drone strikes.
Tensions in the region were not helped by an Israeli push further into Lebanon in the battle against the Iranian-backed Hezbollah militant group.
The fresh attacks between the U.S. and Iran nudged Brent up 2.8pc o $93 a barrel, while U.S. crude added 3.1pc to more than $90.
Asian share markets remain underpinned by demand for semiconductors and AI-related gear, with Japan’s Nikkei up a further 0.9pc, having risen almost 5pc last week to all-time highs.
South Korea rose 4.2pc, after surging 8% last week, while Taiwan climbed almost 6pc last week. MSCI’s broadest index of Asia-Pacific shares outside Japan added 1.6pc.
Shares in Samsung jumped almost 10pc on Monday, adding to gains on Friday after it said it had started shipping samples of its latest high-bandwidth memory (HBM) chip to customers.
The power of the AI rush was underlined by data showing South Korea’s exports grew at the strongest annual rate in more than four decades in May to hit a record $87.8bn (£65.2bn).
Nvidia boss Jensen Huang kicks off the Computex trade show in Taiwan on Monday with a speech about AI in which he is expected to expound on his company’s latest product efforts as well as the island’s central role in the industry.
Chinese blue chips dipped 0.2pc, having been restrained recently by a lacklustre economy, with a survey showing factory activity stalled in May.