UK House Price Forecast 2026

After a prolonged period of stagnation and heightened price sensitivity, the UK housing market appears to be entering a new phase. According to the latest Nationwide data, house prices are expected to rise in 2026, supported by improving affordability, falling interest rates and a re-balancing of regional values.

House Price Growth Forecast for 2026

Nationwide forecasts UK house prices will increase by 2% to 4% in 2026. If realised, this would take the average UK house price to approximately £283,900, marking a return to moderate growth following the correctionary conditions of recent years.

Other major forecasts broadly support this outlook:

• Rightmove expects house prices to rise by around 2% in 2026.

• Halifax predicts prices will increase by 1% to 3%, stating that lower interest rates and easing inflation are likely to outweigh the impact of slowing wage growth and a potential rise in unemployment.

This is not a return to boom-era price inflation, but a measured recovery driven by economic fundamentals.

Why Prices Are Expected to Rise

1. Interest Rates Have Already Fallen

On 18th December, the Bank of England cut interest rates from 4% to 3.75%, the lowest level since February 2023.

This shift has already fed through to real-world borrowing costs. By year-end, average two- and five-year fixed mortgage rates were broadly in the 4.5%–5% range, down significantly from their 2023 peaks above 6%.

Lower borrowing costs directly support:

• Mortgage affordability

• Buyer confidence

• Transaction liquidity

This confirms Nationwide’s expectation that easing borrowing conditions will underpin housing demand and support modest price growth into 2026.

2. Income Growth Is Catching Up

By the end of 2025, earnings growth had overtaken house price growth, reversing a long-standing affordability imbalance. This has improved buyers’ ability to absorb moderate price increases without becoming overstretched — a key factor in sustaining demand.

Transaction Volumes Are Stabilising

Price growth alone does not define a healthy market — liquidity matters.

Full-year data for 2025 indicates that:

• UK housing transactions finished slightly above 2024 levels

• Mortgage approvals were approximately 10–15% higher year-on-year

This confirms that buyer confidence has stabilised and that demand is translating into completed transactions rather than remaining theoretical.

The North–South Divide Is Narrowing

One of the most significant longer-term trends highlighted by Nationwide is regional convergence:

• Northern house prices are now approximately 58% of southern prices

• This represents the narrowest north–south price gap since 2013

This reflects slower growth in London and the South East, alongside stronger relative performance across northern and midlands markets. For investors, it reinforces the case for regional diversification and yield-led strategies.

Structural Undersupply Continues to Support Prices

Despite softer conditions in recent years, the UK housing market remains structurally undersupplied:

• New-build completions continued to fall short of long-term housing targets throughout 2025

• Planning approvals remained materially below pre-pandemic averages

• Net household formation continued to exceed the rate of new housing delivery

This persistent imbalance between supply and demand provides a powerful long-term support for both prices and rents, particularly in affordable, high-demand locations.

Rental Demand Remains Strong

For property investors, rental market dynamics remained a key pillar of performance in 2025:

• Rents rose at high single-digit annual rates across many regions

• Tenant demand continued to significantly outstrip available rental stock

• This has underpinned income resilience, even during a period of modest capital growth

In an environment of steady rather than explosive price appreciation, yield and rental stability become increasingly important.

Regulatory Changes on the Horizon

On 15th December, the Financial Conduct Authority (FCA) confirmed it would consult on changes to the mortgage market, including:

• Simplifying mortgage rules to allow more flexible products reflecting different working patterns and income levels

• Improving advice to help people “confidently plan for later life”

• Encouraging the use of AI to help brokers provide better and faster advice

If implemented, these reforms could improve access to mortgage finance and support sustained housing demand over the medium to long term.

Short-Term Softness, Long-Term Direction

Despite the improving outlook, the market remained price-sensitive towards the end of 2025:

• Asking prices fell by around 1.8% in December

• Annual asking price growth turned marginally negative

• New seller listings declined by approximately 4% during the second half of 2025

This reflects realistic pricing behaviour rather than underlying structural weakness.

What This Means for Property Investors

📌 Price growth is returning — but sustainably
📌 Mortgage affordability has improved in real terms
📌 Transaction volumes have stabilised
📌 Structural undersupply continues to support long-term values
📌 Rental demand remains strong
📌 Regional markets offer increasingly attractive risk-adjusted returns

Investors expecting double-digit capital growth may be disappointed, but those focused on steady appreciation combined with resilient income are entering a more favourable environment.

Final Thought

As 2025 draws to a close, the outlook for 2026 suggests a housing market supported not by speculation or easy credit, but by lower interest rates, improving affordability, stabilising transaction volumes, structural undersupply and sustained rental demand.

For investors who understand the data — and act strategically — the next phase of the UK property cycle is already taking shape.