The UK housing market enters 2026 in a more stable position than at any point over the past two years, but the recovery remains tentative and uneven. The most recent Nationwide House Price Index for December shows UK annual growth of only 0.6%, but this follows months where it has hovered at around 2%, suggesting prices stopped falling in 2025 and are gradually firming. This marks a clear shift from the more abrupt declines seen throughout 2023, when rising mortgage rates drove affordability to its weakest point in over a decade.

A market emerging from a deep adjustment
The housing sector is still dealing with the after-effects of the sharp increase in mortgage borrowing costs since 2022. Although mortgage rates have eased from their peak, they remain well above the historically levels that shaped buyer expectations for much of the previous decade. As a result, demand is rebuilding slowly, and house price inflation is returning only at a modest pace.

The recent cuts by the Bank of England in interest rates have helped to stabilise sentiment, but these cuts will not undo the structural change in affordability. Buyers in 2026 will still be borrowing in a higher-rate environment than many had grown accustomed to, which means the market’s recovery will depend heavily on rising real wages and improved consumer confidence.

London lagging, regions rebalancing
London continues to experience the greatest strain. With mortgage servicing costs taking up an outsized share of disposable income, average prices in the capital have softened. The Autumn Budget has added further pressure: the higher tax surcharge on properties above £2m disproportionately affects London and its commuter belt, where the majority of such homes are concentrated. This is likely to result in lower transaction volumes at the top end of the market and sustained caution among international buyers.