The ongoing conflicts in Ukraine and Iran are having significant impacts on world markets, and of course, this affects property development too. In particular, the effects of the closure of the Strait of Hormuz are being felt far and wide.
From increased material costs to higher interest rates, lenders tightening their belts and buyers exercising caution, it can be a fraught time for developers of all sizes.
However, is all the news bad? Are there reasons to be positive? In this blog post, we explore just that.
The Impacts of The Middle East Conflict
There are several ways the Iran War is impacting property development here in the UK. Let’s take a look.
Increased Energy Prices
Given that around 20% of the world’s oil and natural gas supply flows through the Strait of Hormuz, The International Energy Agency has described its closure as the “largest supply disruption in the history of the global oil market.” Consequently, the price of oil has increased from around $72 per barrel to around $98 per barrel in mid-April, down from a peak of $120 at the end of March 2026.
The UK is a large energy importer and not only does this impact inflation (more on that later), but it feeds into the direct costs of property development.
Higher Construction Costs
The cost of energy sits at the heart of the construction industry, and even small price changes can have widespread impacts. For example, steel, aluminium, cement, ceramics, glass, and plastics are all energy-intensive to manufacture, and these higher costs are passed on to the customer.
Barratt, one of the UK’s largest home builders, has predicted that “higher energy costs are likely to be reflected in increased building material costs in 2026-27”. While large companies like Barratt are better placed to absorb these increases, small, independent developers could feel the pinch, especially with higher land values and increasing planning costs eating into already tight margins.
Likewise, higher petrol and diesel costs make it more expensive to deliver materials to the site, to operate heavy machinery and tools, and to fill the petrol tanks of the vans and trucks used by labourers and contractors.
It’s clear that developers will have to factor significantly more contingency into the budget planning, and potentially borrow more. However, increased levels of borrowing also puts them at the mercy of higher interest rates.
Interest Rates May Rise
At the beginning of 2026, the UK’s economic outlook appeared encouraging. The Bank of England’s base rate stood at 3.75%, inflation had fallen to 3.0% in January and was expected to reach the Bank’s 2% target by spring.
However, the Iran conflict has changed everything. In March, the Bank of England’s Monetary Policy Committee held the rate at 3.75% and warned that inflation would likely reach 3 – 3.5% in Q2 and Q3 of 2026, potentially leading to rate increases.
For those who need finance, higher-for-longer interest rates can lead to increased borrowing costs on development loans, bridging loans, and other refinancing arrangements.
Unfortunately, this uncertainty can also impact the buyer market, as higher mortgage rates may deter potential buyers already struggling with an increased cost of living.
Reasons for Optimism for Property Developers
While the current economic climate is clearly challenging, there are reasons to be optimistic, especially for those of us in the South East.
Our proximity to London, persistently high levels of demand, and the overall economic health of the region suggest that the market should be able to ride these issues out, as we saw with the impacts of Russia’s 2022 invasion of Ukraine.
Property developers who successfully navigated that conflict will be encouraged by the knowledge that projects with strong fundamentals, realistic budgets, and reliable partners can still be delivered profitably even in volatile conditions.
Similarly, we are also seeing signs that progress is being made with talks between the USA, Israel and Iran, potentially leading to a reopening of the Strait of Hormuz.
What This Means for Your Next Project
For developers planning projects now, there are several key priorities:
- Build meaningful contingency into cost plans to account for material price volatility.
- Stress-test business plans against a range of interest rate scenarios rather than assuming a single base case.
- Ensure your financial and construction agreements can accommodate the possibility of delays driven by supply chain disruption.
Getting flexible, specialist development finance from a lender who understands the current environment is vital. The volatility of the past six weeks is a reminder that working with a finance partner who can move quickly, think pragmatically, and adapt alongside you can make the difference between a viable project and one that falls flat.
At Hunter Finance, we lend our own money. That means we can act quickly and flexibly, without needing brokers or being beholden to banks. We’ve funded over 500 projects in the South East of England, using our extensive local knowledge and experience of the industry to help you navigate the issues and challenges of property development.
We can often offer an Agreement in Principle within 7 days, so contact us today to find out more.
