Podcast: How has the Iran war changed the local property market?
Key Takeaways
- Global economic uncertainty, particularly following geopolitical tensions in the Middle East, has disrupted forecasts and created a more cautious environment for policymakers, delaying the market improvements that were anticipated at the start of the year.
- Interest rate reductions have not materialised as expected, with the Bank of England base rate remaining unchanged since December. While a single rate cut is still possible later in the year, its timing will depend on inflation and wider economic conditions.
- Mortgage rates have remained higher than many buyers anticipated, with borrowing costs still sitting around or above 4% even for those with larger deposits, limiting affordability gains across the housing market.
- The Edinburgh and Lothians property market has remained resilient despite economic headwinds, with stable average sale prices, consistent listing levels and balanced market conditions supporting continued confidence among buyers and sellers.
- Buyer competition has become more measured, with fewer properties reaching closing dates and premiums above Home Report valuations easing, creating fairer conditions for purchasers while still maintaining healthy levels of market activity.
In this episode of the ESPC Property Show podcast, Paul & Megan review their 2026 predictions and see what's come true and what has changed since December 2025.
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Key Insights
Global uncertainty has changed the economic outlook
The impact of the recent conflict in the Middle East, described as a significant “black swan” event that has disrupted economic forecasts. Expectations at the start of the year have been reshaped by heightened geopolitical uncertainty, causing delays to anticipated market improvements and making policymakers more cautious about major economic decisions.
Interest rate cuts have been delayed
At the beginning of the year, two interest rate cuts were widely expected, but none have materialised, with the Bank of England base rate remaining at 3.75% since December. While another hold is anticipated in June, Paul still expects a single rate cut later in the year, most likely after autumn. However, this will depend on inflation stabilising and global economic conditions improving, as the Bank balances weak economic growth against persistent external inflationary pressures.
Mortgage rates remain higher than expected
Mortgage pricing has become less closely linked to the Bank of England base rate than in previous years. Even borrowers with substantial deposits are still facing rates around or above 4%, reflecting wider market uncertainty rather than central bank policy alone. This has limited the affordability boost many buyers were expecting and continues to influence activity across the property market.
The Edinburgh and Lothians market remains stable
Despite economic headwinds, the Edinburgh and Lothians property market continues to demonstrate resilience. Listings have remained broadly consistent with last year, average sale prices have held steady, and while sales volumes have fallen slightly, the market is still described as healthy and functioning well. Activity levels may be lower than the exceptionally busy conditions of the previous year, but the overall picture remains one of stability rather than decline.
Competition among buyers has become more balanced
Market conditions have become fairer for buyers, with fewer properties going to closing dates and average premiums over Home Report valuations edging down slightly. While stories of homes achieving significantly above valuation often dominate social media, these examples are exceptions rather than the norm. In reality, many properties are selling much closer to valuation, and some are even achieving below it.
Uncertainty is affecting the upper end of the market
The market for properties valued above £1 million is experiencing a slower period as buyers and sellers await greater clarity on potential tax changes. Ongoing discussions around property taxation and possible reforms have created a degree of hesitation, leading many participants in the higher-end market to adopt a cautious “wait and see” approach before making major decisions.
Policy changes could shape the next phase of the market
Several upcoming policy developments are expected to influence market activity, including potential changes to property taxation, updates to environmental regulations and reviews of Home Report requirements. While initiatives aimed at helping first-time buyers are welcomed, the discussion argues that these measures address symptoms rather than underlying challenges, with broader affordability and supply issues still requiring longer-term solutions.
Edinburgh continues to outperform many other markets
The podcast concludes by emphasising Edinburgh’s relative insulation from wider economic turbulence. Strong demand from both domestic and international buyers, combined with continued growth in the lettings sector, has helped support the market even during uncertain periods. Areas such as Dunfermline, Leith, Corstorphine and Musselburgh remain among the strongest-performing locations, reinforcing confidence that the region’s property market remains robust despite broader economic challenges.