Iran battle ‘one other nail within the coffin’ for housebuilding: Construction companies face rising prices as mortgage charges soar

Conflict in the Middle East threatens to slam the brakes on housebuilding – putting ‘another nail in the coffin’ of Labour’s targets for new homes.

The surge in oil and gas prices since the war erupted at the end of February has sparked fears that interest rate rises will be needed to combat a punishing inflation shock.

This has fed through to higher mortgage costs – with the average two-year fix up from 4.83 per cent to 5.89 per cent since the start of March while a typical five-year fix has jumped from 4.95 per cent to 5.78 per cent.

More expensive mortgages and a collapse in consumer confidence are primed to dent demand for new homes just as builders also face rising costs and potential supply shortages.

The crisis looks set to shatter any lingering hopes that Labour will hit its target of overseeing the construction of 1.5m new homes in this Parliament – some 300,000 a year.

Steve Turner, executive director at the Home Builders Federation, warned that tax rises and new regulatory costs – including safety levies and rules on solar panels – are already having ‘a huge impact on home building economics with swathes of the country now not viable to develop’.

Housing threat: More expensive mortgages and a collapse in consumer confidence are primed to dent demand for new homes just as builders also face rising costs 

He added: ‘There is thus no capacity to absorb any further cost increases, which would instead result in a further fall in housing delivery from levels that are already massively undershooting what is needed to meet the Government’s ambitious target.’

An executive at one listed housebuilder, who did not want to be named, said: ‘If the conflict goes on much longer, it’s another nail in the coffin of Labour’s housebuilding targets.’

The mounting crisis has been reflected in housebuilding share prices, with Persimmon down 27 per cent since the war began, Barratt Redrow off 29 per cent, Taylor Wimpey 25 per cent lower and Berkeley down 27 per cent.

Kelly Boorman, head of construction at consultancy group RSM UK, said: ‘Hot off the heels of the Autumn Budget, which saw house completions delayed at the end of 2025, the ongoing conflict in the Middle East removes any certainty around demand returning.’