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Major homebuilders in the United Kingdom have raised concerns that the ongoing conflict involving Iran could further strain the housing market, which is already facing weak demand and affordability challenges. Rising oil and energy prices are expected to increase the cost of construction materials, while higher mortgage rates may make it harder for buyers to purchase homes. Developers such as Berkeley Group, Vistry, Persimmon, Taylor Wimpey, and Barratt Redrow have highlighted risks to demand, profitability, and construction costs. Although some indicators show early recovery in sales enquiries, geopolitical tensions and economic uncertainty continue to affect the sector's outlook.
Homebuilders across the United Kingdom have cautioned that the ongoing conflict involving Iran could worsen the country's housing affordability issues, as the sector continues to recover from a prolonged slowdown in demand and profitability. Rising geopolitical tensions are expected to increase energy costs and keep borrowing rates elevated, creating further challenges for developers and potential homebuyers. Advertisement
London-focused developer Berkeley Group recently reaffirmed its profit outlook for fiscal years 2026 and 2027. However, the company indicated that the war in the Middle East could lead to further deterioration in macroeconomic conditions. The company's concerns reflect similar warnings from other builders such as Vistry Group and Persimmon plc, which have also highlighted the potential economic impact of the conflict.
Energy prices have risen sharply as the war intensified, increasing the cost of energy-intensive construction materials such as bricks and plasterboard. Analysts say the rise in energy prices could feed into broader inflation expectations, potentially pushing mortgage rates higher and disrupting the housing market further.
According to Investec analyst Aynsley Lammin, the primary concern for developers is the rise in energy costs and the way these costs influence inflation expectations. The analyst noted that disruption in the mortgage market has already started as swap rates increase, adding pressure on buyers who are already dealing with affordability constraints.
Higher borrowing costs are expected to make it more difficult for developers to pass on increased construction costs to buyers. As mortgage rates rise, potential homeowners may delay purchases, which could slow down demand for new housing.
Several major builders have already begun to feel the pressure. Britain's largest homebuilder Barratt Redrow reduced its dividend earlier in the year after reporting a decline in earnings. The company increased buyer incentives in an effort to stimulate demand, highlighting the ongoing challenges in the residential property market.
Other developers have also issued cautious outlooks. Taylor Wimpey and Vistry recently warned that demand and profit margins are expected to remain weak through 2026. Vistry indicated that a prolonged conflict in the Middle East could lead to higher construction costs and weaker consumer sentiment.
Meanwhile, Persimmon presented a more positive profit outlook compared with peers. The company produces key building materials such as bricks, tiles, and timber frames internally, which may help cushion the impact of rising input costs. However, it acknowledged that the conflict's effect on buyer sentiment remains uncertain.
Berkeley, which primarily develops residential projects in London and the South East of England, reported that sales enquiries and reservation levels have started improving and are gradually returning to levels typically seen during the summer selling season. Despite this improvement, trading activity during the winter months was affected by geopolitical tensions and broader economic uncertainty.
The company has continued to outperform many of its competitors in terms of profitability. Berkeley reported operating margins above 20%, while most rival developers currently operate with margins ranging between 8% and 14%. However, analysts expect additional pressure on the company following the introduction of luxury home taxes in the British government's budget announced late last year.
Regulatory changes are also affecting the supply of new homes in the capital. Stricter building-safety regulations implemented after past safety concerns have slowed development activity in London, adding to supply constraints in an already tight housing market.
Looking beyond 2027, Berkeley indicated that it intends to focus more on generating cash and optimising its land holdings. The developer also plans to expand its build-to-rent platform, reflecting a broader shift in strategy as housing demand patterns continue to evolve across the United Kingdom.
Source Reuters
5th Jun, 2025
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