UK Housing Market Outlook for 2026: First-Time Buyers to Lead, Prices and Rents Moderating
The UK housing market in 2026 is expected to be primarily driven by first-time buyers, with house prices projected to rise between 2% and 4%. This follows a moderate price increase of 1.8% year to November 2025, with the average house price at £272,998 amidst inflation around 3.2%.
Mortgage affordability is improving as Bank of England interest rate cuts take effect, leading to the lowest share of first-time buyers' monthly payments to income since 2022. Lending rules have been relaxed, allowing larger mortgages with smaller deposits—potentially as low as 10%–15%—and looser stress tests. A city watchdog is also set to assist first-time buyers and the self-employed.
Geographically, London house prices are expected to flatline in 2026, while northern England's market strengthens, narrowing the north–south price divide to its smallest since 2013. Despite this, the overall market momentum remains slow, with properties taking over 200 days from listing to exchange. The unemployment rate was 5.1%, a four-year high, contributing to a weak economic outlook and dampened buyer confidence.
First-time buyers accounted for about one-third of property purchases in 2025, with London transactions making up approximately half of these. Movement outside London is limited partly due to stamp-duty costs which discourage relocation.
On the rental front, prices are expected to rise by 2%–3.5% in 2026. Rents already increased by 5% to £1,360 in the year to October, with rental scarcity still an issue.
Additionally, budget measures include a mansion tax surcharge targeting homes valued at £2 million and above starting April 2028, though its impact is anticipated to be smaller than initially feared.
