In 2026, might home prices drop by 5%?

Higher mortgage rates are undermining buyer confidence, which is driving down home prices as a result of the Iran War

According to some analysts, they might drop by as much as 5% in 2026.

Experts caution that before the year is out, the decline in UK home prices could get worse.

According to Nationwide's most recent house price index (HPI) data, property values decreased by 0.6 percent in May to 278,024.

According to the Building Society, annual house price growth decreased from 3 percent in April to 1.7 percent.

Nationwide chief economist Robert Gardner attributed the decline to the Middle East conflict, which has caused mortgage rates to rise and consumer confidence to decline.

Watch the complete video here. According to data firm Moneyfacts, the average interest rate on a two-year fixed mortgage deal increased from 4.83 percent on February 27, the day before the US and Israel launched strikes on Iran, to 5.68 percent as of June 1.

Gardner stated: "Some loss of momentum was to be expected given the uncertainty created by developments in the Middle East and the subsequent increase in energy prices and market interest rates."

Since the start of the Middle East conflict, Nationwide is not the only major lender to report a monthly decline in home prices. There was a 0.5 percent decline in the Halifax house price index in March 2026 and an additional 0.1 percent decline in April.

In the meantime, the average UK home price decreased from 269,204 to 268,132 between February and March 2026, according to the most recent data from the Office for National Statistics.

Will home values continue to decline in 2026?

At the beginning of 2026, lenders, experts, and economists were generally optimistic about the prospects for future growth in UK house prices; however, any optimism has been tempered by tensions in the Middle East.

According to the most recent RICS UK Residential Market Survey, buyer demand has been negatively impacted by rising mortgage rates.

Additionally, there is an abundance of properties available for purchase. Rightmove reports that there are more properties for sale at this time of year than there have been since 2015.

The asking prices reflect this. According to Rightmoves' most recent HPI, average asking prices were 0.3 percent lower in May 2026 than they were in the same month the previous year.

Savills, an estate agency, has revised its forecast from December 2025 to a 2 percent decline in home prices in 2026.

According to Savills, house prices could drop by up to 4% in London and 3.5% in the South East and East of England.

Deutsche Bank, meanwhile, anticipates a 35% decline in real estate values this year.

In 2026, Sanjay Raja, the bank's chief economist for the UK, stated that the Iranian conflict had "likely put an end to any hopes of an imminent housing market recovery."

Even more optimistic economists and real estate brokers have lowered their earlier projections.

In September 2025, Knight Frank, an estate agent, projected a 3 percent increase in property values in 2026; however, this estimate has since dropped to 1.5 percent.

As lower interest mortgages disappear from the market, Tom Bill, head of Knight Frank's UK residential research, predicted "continued downward pressure" on housing transaction activity.

Pantheon Macroeconomics, an economic research firm, has also predicted that prices will rise by only 1% in 2026, compared to a prior estimate of 3%.

In another article, we discuss whether now is a good time to sell a home.