Iran war inflation shock complicates recovery just as financing conditions were beginning to improve
The UK property market is navigating a more uncertain path through 2026, with the inflation impact of the Iran war materially weakening confidence that the Bank of England will be able to deliver rate cuts later this year, according to Heligan Group’s latest Real Estate Sector Update.
Bank Rate was held at 3.75% in March 2026, and what had appeared earlier in the year to be a straightforward trajectory of two cuts now looks considerably less certain. CPI rose to 3.3% in March from 3.0% in February, with the first-round impact most visible in fuel and other energy-sensitive categories, while the broader concern is that a renewed energy shock feeds into transport, logistics and services inflation and keeps inflation above target for longer.
Sam Lewis, Director, Debt Advisory at Heligan Group, said: “We had been seeing progress through the early part of the year. The Iran war has changed that calculus quite quickly, and developers who were making financing decisions on the assumption that rates would fall twice before year-end now need to revisit those plans. A longer period of restrictive financing conditions was not what anyone was expecting six months ago.”
Official data show the average UK house price at £268,000 in January 2026, up 1.3% year-on-year, a market that is holding up but no longer enjoying the stronger momentum seen at the end of 2024. Northern Ireland continued to outperform, with prices up 7.5% year-on-year in Q4 2025, while by January 2026 London’s annual fall had deepened to 1.7%. The cost outlook has become less benign since the onset of the Iran war, with industry commentary highlighting rising energy costs as a renewed risk for bricks, plasterboard and other energy-intensive materials.
The living sector continues to provide one of the clearest areas of resilience, with average UK private rents at £1,367 in January 2026 and rental inflation still strongest in the North East at 7.6% to 8.0%. In 2025, Maslow Capital provided a £500 million whole-loan facility to Fusion for five PBSA schemes across Birmingham, London, Loughborough, Glasgow and Cardiff, delivering 3,138 beds, showing that debt capital is still available at meaningful scale where location, sponsor quality and operational proposition are strong.
Performance in commercial property is being driven by prime assets and better-quality location. CBRE estimates that City core prime rents rose 9.1% in 2025 and West End core rents 18.8%, with prime rents expected to rise further in 2026. Retail has also outperformed, with MSCI data showing a 12-month total return of 8.4% in Q4 2025. Secondary assets continue to face weaker demand and greater obsolescence risk as occupiers prioritise location and ESG performance.
Lewis continued: “Lenders are still doing deals, but they are being very deliberate about where they deploy capital. The gap between credible and well-located schemes has widened considerably over the past few months.”
The report also highlights a growing shift toward portfolio-level Peak Debt facilities and Revolving Credit Facilities as an alternative to financing projects one by one.
“Rather than adding up the maximum debt on every individual site, lenders are increasingly sizing facilities to the borrower’s maximum combined borrowing at any one point in time. Peak Debt availability is increasing despite overall market conditions, signalling a willingness to compete for well-thought out, profitable schemes of 50 or more units.”
Lewis concluded, “there is strong policy intent behind the housing agenda, and the long-term fundamentals have not changed. What nobody can afford to do right now is plan on the assumption that the external environment stays stable, because this year has already shown that it will not.”