Housing demand is slowing, buyers and real estate professionals are facing a market that is showing signs of stagnation.
Demand isn’t exactly slowing down, but homebuyers are wary, and experts are now predicting a longer period of decline.
The latest survey from the Royal Institution of Chartered Surveyors (RICS) paints a stark picture: new buyer inquiries fell to 39% in March, the weakest reading since August 2023 and a significant drop from 29%.
Agreed sales followed suit, falling to 34% in March from 13% the previous month. Even more telling is the deterioration in short-term sales expectations, which fell to -33%, compared to just 4% previously.
Although conditions may improve as world tensions ease, it will take time for confidence and stability to fully return
Many would-be buyers are pulling back, deterred by a combination of high borrowing costs – fueled by war in the Middle East – and already fragile household finances.
Mortgage rates remain high, despite the reduction in the number of lenders. As Mortgage Strategy going to press, the average two-year fixed rate is 5.81%, according to Moneyfacts, up 98bps from 4.83% in early March and down from a recent high of 5.90% in early April.
Meanwhile the five-year fixed rate has risen to 5.7%, 75bps higher than in early March but also down slightly from its peak of 5.78% in early April.
Moneyfacts finance expert Rachel Springall says borrowers are “left in the lurch” and many are unsure whether they should lock in a mortgage now or wait and hope rates fall.
RSM UK head of real estate Stacy Eden says: “Economic concerns caused by the Iran conflict have increased pressure on the housing market, reducing demand.
As mortgage rates continue to climb, consumers will struggle to squeeze their disposable income and cost-of-living pressures will increase.
“The consequences are real. As mortgage risk continues to rise, consumers will struggle to squeeze their disposable income and cost-of-living pressures will increase.”
Buyers are divided into two camps according to housing needs, according to Zoopla.
In the first group are first-time buyers and those in the first stages of travel, who are cautious. In the second group are dedicated, more gung-ho buyers.
Zoopla managing director of research Richard Donnell says: “There are fewer buyers overall than last year but those who are still working tend to be more committed and better prepared to move on.
“These ‘big movers’ – with mortgages and a clear desire to relocate – continue to support sales levels as earlier stage developers take a ‘wait and see’ approach.”
Data from Zoopla shows a growing gap between home buying interest and action. Consumer demand was running 13% below year-ago levels in the three months to March, however agreed sales fell 2%.
The rental business will benefit in the short term as demand moves away from the retail market
Looking ahead, Quilter financial planner Ian Futcher says the sharp rise in borrowing costs from February will have its biggest impact on spring and early summer housing data, as affordability constraints bite and sentiment weakens further.
Futcher adds: “If tensions ease and inflationary pressures ease, mortgage rates may continue to decline, supporting lower rates rather than a sharp correction.”
In the meantime, homeowners should see positive impacts from weak consumer demand and the war in the Middle East itself.
Knight Frank head of UK residential research Tom Bill says: “Rental activity will benefit in the short term as demand moves away from the sales market, as higher borrowing costs reduce spending and global uncertainty means people are keeping their options open.”
A small and unexpected increase in landlords has been that more people fleeing the war in the Middle East have moved to rent in London, Knight Frank said, increasing demand for rent in the capital.
There are fewer buyers overall than last year but those who are still active tend to be more committed and better prepared to move on
Looking ahead, the likely outlook for housing demand is a prolonged period of low activity. RICS data suggests that, over the next 12 months, sales expectations have fallen to -1%, meaning most of its members are expecting a much bigger market.
Propertymark chief executive Nathan Emerson says: “As purchasing power declines, some slowdown in market activity is likely as people prioritize stability and reassess their budgets.
Eden adds: “Even if a permanent resolution to the conflict emerges in the coming days or weeks, the economic landscape of 2026 is still uncertain.
Borrowers are left in limbo and many aren’t sure if they should lock in a loan amount now or wait
“However, if the conflict can end soon, this will open the door to future mortgage rate cuts and provide a much-needed boost to consumer confidence.”
The trajectory of housing demand depends on factors outside the control of the market. Inflation, interest rates and the stability of the country will determine whether confidence returns or continues to deteriorate.
At the moment, the current situation is a warning: the market is not in a crisis but it is far from comfortable.
This article appeared in the May 2026 issue of Mortgage Strategy.
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