A war involving Iran and the United States has a huge effect on the property market in Scotland. Property markets are rarely moved by geopolitics in a direct trackable point of impact. Instead, they react through a chain of pressure points: energy prices, inflation, interest rates, consumer confidence, construction costs, import/export sanctions, migration patterns, mortgage products and government finances. In Scotland, where the housing market is already balancing the cost of living affordability pressures, slower rent growth than previously, and a sales market still sensitive to mortgage costs, a war could alter both the rental and sales landscape in significant ways.
A war involving Iran matters to global markets because of the country’s position in the Gulf and the wider role of the Strait of Hormuz in world oil and gas flows. Recent reporting and central-bank commentary already suggest that conflict in the region has pushed energy prices higher and unsettled inflation expectations across Europe and the UK. This will push fuel costs up for tenants which may impact their affordability for rent. To mitigate this, explore rent guarantee insurance options. This could also impact refurbishment projects and rising fuel costs should be budgeted for in voids, particularly over the winter months. Rising fuel costs could impact inflation, causing a rise in inflation quicker than previously anticipated by economists. Rising inflation could also impact borrowing costs. We have already seen 5 year fixed rate mortgages being removed by lenders and replaced with two year trackers as the bank’s confidence is impacted by the war. Lenders are repricing their products due to fear of inflation risk which will also have a cooling effect on the market.
This could impact Scotland’s housing market because higher energy prices hit both tenants and buyers in two ways. The rising utility costs may leave households with less money for rent or mortgage payments. Rising interest rates or prolonged increases in interest rates squeezes the average household budget. The government would come under pressure to financially buffer households or implement policies to protect vulnerable groups. Such buffers may reduce the affordability blow, but will not address the underlying shortage of houses.
Impact on buyer confidence and the sales market
On the sales side, the most immediate effect would probably be weaker buyer confidence. Price sensitivity and a more cautious approach to risk are the first signs of strain on the housing market. There is always a slight slowdown in the sales market pre-election as buyers sometimes hold off until they have more clarity on who will be in power and how the market will be impacted. With the war also taking place just now, buyer confidence is hit by a double edged sword. When households fear a broader economic shock, they delay major commitments, like property purchases.
First time buyers are the most sensitive to monthly affordability, deposit constraints and lender stress tests. Any impact here will reduce the properties within their price range. This is good news for landlords because first time buyers may opt to rent instead of buy until the interest rates reduce, which will increase rental demand. As the time to sell increases, some sellers may opt to put their properties into the rental market, which could improve the available property stock levels for tenants.
That does not automatically mean Scottish house prices would crash. In fact, more likely the market will separate the affordable properties in good catchment areas from the less affordable properties. This gap is likely to widen quickly. Highly leveraged new-build buyers, and lower-deposit first-time buyer could face more pressure.
The rental market could also move in a more complicated way. On one hand, if fewer people can afford to buy, more households stay in the private rented sector for longer. However the rising fuel cost will put pressure on affordability. This could impact inflationary rent increases. Rental growth has slowed slightly in Scotland in the last 12 months after the sharp increases in rent between 2022-2024. Citylets and the office of national statistics is still reporting rental rises, albeit at a slower rate than before.
A war could impact the rental market further, especially in cities, where demand is often fed by students, young professionals and households priced out of ownership. If potential buyers avoid the sales market, rental demand could rise just as some landlords decide to exit the sector due to rising interest rates. Landlords could face higher mortgage costs on buy-to-let borrowing, rising repair and insurance costs, more expensive energy-efficiency upgrades, and possibly weaker tenant affordability. Some would try to raise rents or take out rent guarantee insurance; others would sell. If landlords exit, supply of property and rents may remain high due to demand even when tenants are stretched due to lack of housing supply.
Construction and development are other areas that could be impacted by war. Scotland’s sales and rental markets both depend on new supply of property being built. A major conflict affecting oil and gas prices would likely raise transport, materials and financing costs. Developers already operate on tight margins. If borrowing becomes more expensive and materials inflation returns, some projects will be delayed, redesigned or pass a point of remaining viable. If construction pipelines weaken because of global instability, that would reduce the supply of new property in both the owner-occupier and rental markets over time.
In the sales market, that would probably mean slower activity, affordability problems for first-time buyers, and more localised price performance impacts rather than a collective price drop across the country. In the rental market, it could mean stronger demand but tighter affordability, with the risk that tenants face higher competition for property while their budgets for rent is reducing.
A more divided market ahead?
For Scotland, the biggest danger is not simply that homes become more expensive or cheaper. It is that the market becomes more divided. Cash-rich buyers and well-capitalised landlords will still find opportunities and will still grow their portfolios. Cash buyers will not be impacted by higher interest rates and will have more negotiating power in property deals. The non-investor market could face fewer options, higher monthly costs and harder choices about where and how to live. That is usually how distant wars show up in housing markets: not as a headline-grabbing property collapse, but as a slow deterioration in affordability. And for many Scottish households, that may be the part that bites hardest.
