UK residential property prices are expected to register moderate growth in 2026, underpinned by improving affordability as wages outpace house price increases and credit conditions ease, according to a recent research note from UBS.
Monetary policy is shifting. The Bank of England lowered the base rate from 4.00% to 3.75% in December, and further reductions are penciled in for June and September that could see the rate fall to 3.25%. That trajectory of policy easing is anticipated to bolster affordability by reducing borrowing costs relative to nominal wage gains.
Mortgage markets have already shown movement consistent with this outlook. Average advertised mortgage rates have retreated from the nearly 6% peak reached in October 2022. Typical two-year fixed mortgages are now around 3.9%, down from 4.60% at the end of 2024, and lenders have started to reprice new loans in anticipation of additional cuts.
Near-term demand and economic backdrop
Despite the supportive effect of lower rates and rising nominal pay, short-term buyer appetite may be constrained. Renewed concerns about interest rates driven by higher energy prices have the potential to restrain activity. The wider economic environment is also expected to remain subdued, with GDP growth forecast to slow slightly and unemployment potentially edging up towards around 5%.
Consumer sentiment is weak. The GfK consumer confidence index registered negative 19 in February. Wage growth has cooled to roughly a 4% annualized rate - a three-year low - while inflation eased to 3% in January.
Price trends by segment and transaction activity
On an annual basis, house price growth decelerated to 1.7% in November, below the 20-year average of 3.3%. Performance varies by property type: terraced houses are currently the strongest performers, followed by semi-detached and detached homes. Flats and maisonettes have weakened and now represent the weakest segment, reversing the pattern seen before 2020.
Mortgage approvals have held roughly steady at about 60,000 per month as of January, signalling an underlying degree of market resilience even as survey-based sentiment from the Royal Institution of Chartered Surveyors has softened.
Prime central London and the rental market
Prime central London values remain substantially below earlier peaks. Average prices in the City of London are around A3740,000 per dwelling, down from approximately A31,000,000 in January 2022. At the same time, rental growth continues across the market amid constrained supply. Over the past five years, rental growth has been positive in all prime London areas, with Belgravia and Marylebone among the leaders.
Policy changes affecting landlords and higher-value homes
Tax and tenancy reforms introduce additional considerations for landlords and the high-value segment. The Budget's High Value Council Tax Surcharge will, from April 2028, apply to properties valued at A32 million or more. More immediately, tenancy reforms in the Renters' Rights Act mean landlords will no longer be able to issue new Section 21 no-fault eviction notices after April 30.
Outlook
While uncertainty remains near term, structural demand drivers - in particular household formation and limited housing supply - are expected to provide support for activity through the year. Taken together, the mix of lower borrowing costs, modest wage gains and a constrained supply backdrop points to moderate price gains in 2026, even as economic soft spots and policy changes create clear risks to the pace and distribution of any recovery.