UK House Prices 2026 Forecast: Up to 4% Rise as Rates Ease

Published: 15 December 2025. The English Chronicle Desk. The English Chronicle Online.

UK house prices are expected to rise moderately in 2026 as borrowing costs ease and confidence slowly returns to the housing market. New forecasts from Nationwide suggest average prices could increase between two and four percent next year, supported by falling interest rates and gradual affordability improvements for buyers. While the outlook offers cautious optimism, experts warn that challenges remain, particularly for first-time buyers navigating high deposits and strict lending expectations.

Robert Gardner, Nationwide’s chief economist, said housing activity should strengthen slightly as financial pressures soften. He explained that household incomes are forecast to grow faster than property prices, while interest rates are expected to decline modestly. Together, these trends could help ease affordability constraints that have weighed heavily on buyers since the sharp rate rises of recent years.

According to Nationwide, the average UK house price stood at £272,998 in November. A four percent increase in 2026 would push that figure close to £284,000. Although this growth appears modest compared with the rapid increases seen earlier in the decade, it would mark a continuation of recovery after a period of stagnation and slowing demand.

Market conditions during 2025 were shaped largely by interest rate expectations. Annual house price growth slowed steadily from 4.7 percent at the end of 2024 to just under two percent by mid-2025. By November, growth had eased further to 1.8 percent. Despite this slowdown, Nationwide said falling mortgage rates helped stabilise prices and prevented sharper declines.

The Bank of England is widely expected to cut its base rate by a quarter point to 3.75 percent this week. Such a move would reinforce a trend already visible in the mortgage market, where lenders have gradually reduced fixed-rate deals. Analysts believe further modest cuts during 2026 could provide additional support for housing demand.

Other major property forecasters broadly share Nationwide’s outlook. Rightmove expects average house prices to rise by around two percent next year, reflecting improved affordability but cautious buyer sentiment. Halifax has offered a slightly wider range, predicting growth between one and three percent, depending on how inflation, wages, and employment levels evolve.

Matt Smith, a mortgage expert at a leading property portal, said many home movers are likely to start 2026 with cheaper borrowing costs than a year earlier. He noted that buyers who have seen small price falls locally, combined with pay rises, may find their purchasing power improving. This shift could encourage delayed movers to re-enter the market.

Affordability is also being influenced by regulatory changes introduced during 2025. Mortgage lenders traditionally cap borrowing at around 4.5 times income and apply stress tests to assess repayment ability under higher rates. However, the Financial Conduct Authority has acknowledged that some stress testing practices may have been overly restrictive.

Earlier this year, the regulator said certain approaches risked limiting access to mortgages that borrowers could realistically afford. Since then, many lenders have adjusted their stress test rates downward, allowing some applicants to borrow slightly more. These changes have already begun to affect lending decisions, particularly for buyers with stable incomes.

In parallel, the FCA has announced plans to consult on broader reforms to the mortgage market. Proposed changes include simplifying rules to encourage more flexible products that reflect varied working patterns. This could benefit self-employed workers and those with irregular incomes, who have often struggled under traditional affordability models.

The regulator also aims to improve mortgage advice, helping borrowers plan more confidently for later life. Technology is expected to play a growing role, with the FCA encouraging responsible use of artificial intelligence to support brokers. Officials believe this could lead to faster, more personalised guidance for consumers.

Mortgage rates have continued to edge lower across the market. According to Moneyfacts, the average two-year fixed mortgage stood at 4.84 percent this week, while the average five-year fix was 4.91 percent. Although still higher than historic lows, these rates represent a notable improvement from peaks seen during 2023.

Rising wages have also supported borrowing capacity. Savills reported that the average first-time buyer borrowed £210,800 in the year to September, the highest figure on record. This reflects both higher incomes and lenders’ increased willingness to offer larger loans under revised affordability assessments.

Despite these developments, many aspiring homeowners still face significant hurdles. Deposit requirements remain substantial, particularly in southern England where prices are higher. Rent costs have also continued to rise in many areas, making it harder for households to save while meeting everyday expenses.

Regional trends reveal a changing balance within the UK housing market. Nationwide said the price gap between northern and southern England has narrowed to its lowest level since 2013. Weak price growth in London has been a major factor, as the capital continues to adjust after years of outperformance.

The average home price in northern England is now almost 58 percent of that in the south. This marks a significant shift from 2017, when the figure dipped to around 48 percent. Analysts say this narrowing reflects stronger demand outside London, driven partly by remote working and lifestyle changes.

London’s slower growth has also been linked to affordability pressures and changes in buyer behaviour. Higher mortgage costs over recent years reduced purchasing power, while some international demand softened. Although the capital remains the UK’s most expensive market, its dominance has eased slightly.

Looking ahead, experts caution that the housing market remains sensitive to economic conditions. While interest rates are expected to fall gradually, any resurgence in inflation or rise in unemployment could dampen confidence. Wage growth is also forecast to slow, potentially limiting future affordability gains.

Nevertheless, most forecasters agree that a severe correction appears unlikely. Supply remains constrained in many areas, with new building failing to keep pace with demand. This imbalance continues to underpin prices, even during periods of weaker activity.

For buyers and sellers alike, 2026 is shaping up as a year of adjustment rather than acceleration. Moderate price growth, improving mortgage availability, and cautious optimism are likely to define the market. Those able to navigate the complexities may find better opportunities than in recent years.

As policy changes take effect and borrowing costs ease, the UK housing market appears set for steadier conditions. While challenges persist, particularly for first-time buyers, the outlook suggests gradual progress rather than renewed volatility.