UK Property Market in January 2026: Steady Growth Amid Falling Rates and Renewed Confidence

UK Property Market Synopsis: A Look Back at 2025 and Ahead to 2026

As we step into 2026, the UK property market stands at a pivotal juncture, reflecting on a year of mixed fortunes in 2025 while eyeing cautious optimism for the months ahead. The past year was marked by resilience in the face of economic headwinds, including stamp duty adjustments and budgetary uncertainties, but ended on a softer note with unexpected price dips in December. Drawing from reports by major lenders like Nationwide and Halifax, alongside forecasts from property experts such as Savills, Knight Frank, and Zoopla, this synopsis provides a factual overview of the market's recent performance and its projected trajectory. While challenges like affordability and regulatory changes persist, improving mortgage conditions and pent-up demand are set to drive a modest recovery.

Recent Performance: A Year of Two Halves

2025 proved to be a tale of contrasts for the UK housing sector. Early in the year, property prices showed steady gains, buoyed by regional strengths and a gradual easing of interest rates. However, as the year drew to a close, momentum waned. Nationwide Building Society reported an unexpected 0.4% month-on-month decline in house prices during December 2025, bringing the average UK property value to £271,068. This defied economists' expectations of a slight 0.1% rise and represented the weakest annual growth since April 2024, slowing to just 0.6%. "The market showed resilience amid turbulence from stamp duty changes in April and budget timing in November," noted Nationwide, highlighting that mortgage approvals remained near pre-Covid levels and first-time buyers accounted for an above-average share of transactions.

Similarly, Halifax's latest house price index painted a comparable picture, with average prices falling 0.6% in December to £297,755—the lowest since June 2025. Annual growth dipped to 0.3%, down from 0.6% in November, marking the weakest increase since March 2024. Amanda Bryden, head of mortgages at Halifax, observed, "Despite the growing risk of domestic political uncertainty, we believe house price growth should climb to 3 per cent by the end of the year." This slowdown was attributed to seasonal factors and lingering effects from the autumn budget, yet the market's underlying strength was evident in resilient mortgage approvals and a house price-to-income ratio at its lowest in over a decade, improving affordability for many.

Regionally, the north-south divide remained pronounced. Northern regions, including Scotland (up 5% annually) and the northwest of England (3.5%), outperformed the south, where London saw prices flatline or even decline by 1.3% overall, with double-digit drops in some high-end postcodes. "Eight of the top ten areas for price growth up to October 2025 were in northern or central England and Scotland," according to Nedbank Private Wealth's analysis, underscoring a shift toward more affordable locales like Manchester, Leeds, and Liverpool.

Outlook for 2026: Modest Growth on the Horizon

Looking forward, experts anticipate a stabilization and gradual uptick in property values throughout 2026, with projections clustering around 2-3% growth UK-wide. Halifax forecasts prices to rise between 1% and 3%, citing "resilient activity, reducing mortgage rates, and increasing lending options for higher loan-to-value ratios." Nationwide echoes this sentiment, expecting growth of 2-4%, as "activity strengthens with affordability improving via income growth outpacing house price growth and further modest declines in interest rates." Rightmove predicts a 2% increase in new seller asking prices, emphasizing "increased choice and lower interest rates sustaining momentum," while Savills and Knight Frank align with 2% and 3% respectively.

This optimism stems from an expected "bounce" in early 2026, driven by pent-up demand. Approximately 1.6-1.8 million fixed-rate mortgage deals are set to expire this year, including 600,000 from ultra-low Covid-era fixes, potentially spurring remortgaging and market activity. UK Finance anticipates around 10,000 fewer transactions than in 2025 (which totaled below 1.2 million), but a surge in listings—up 173% post-budget—could provide more options for buyers. Propertymark cautions that sustainable recovery hinges on rate stability and addressing chronic undersupply, yet the consensus points to a "better year for price growth" as per Rightmove.

However, not all segments will thrive equally. London's market is expected to remain subdued, with Knight Frank revising Greater London growth to 2% (down from 3%) and Prime Central London prices holding steady. The impending "mansion tax" on homes over £2 million, effective from 2028 but with valuations beginning this year, may lead to haggling around that threshold and a 2.5% price reduction in affected areas. Rural markets face additional pressures from council tax hikes on second homes, impacting 12,300 more properties across 71% of English councils.

Key Influencing Factors: Rates, Regulations, and Demand

Several macroeconomic and policy elements will shape the 2026 landscape. Interest rates are a primary driver: The Bank of England's base rate was cut to 3.75% in December 2025, the fourth reduction of the year, following inflation easing to 3.2%. Savills projects it will fall to 3.5% by year-end 2026, then to 3% by 2027 and 2.5% by 2030, leading to mortgage rates settling in the mid-threes. "Rates are likely to fall slowly to around 3% at the lowest," analysts at The Times noted, describing a "rocket and feather" pattern where cuts are gradual but impactful.

Affordability improvements are another boon, particularly for first-time buyers. With £82.8 billion in mortgage debt advanced in 2025—a 30% increase—and schemes aiding deposits, this demographic is poised for a boom. Parental wealth transfers and slowing rent rises further support entry-level purchases, though high prices (7.8 times earnings in London) and stamp duty remain hurdles.

On the regulatory front, the Renters’ Rights Act, effective this year, introduces significant changes: banning no-fault evictions, limiting annual rent increases, and capping deposits at one month's rent. Combined with expanded Making Tax Digital for income tax and energy efficiency mandates, these could prompt some landlords to exit, though a Lendlord survey found 66% planning expansion. Commonhold and leasehold reforms will ease costs for leaseholders, potentially invigorating that segment.

Demand dynamics are evolving too. Falling net migration and rising homeownership may temper tenant competition, but supply shortages persist. "Pockets of affordability will drive intense hunting," experts warn, pointing to hotspots like Plymouth (up 12.6% to £278,808) and affordable postcodes in Newcastle, Basingstoke, and Chessington.

The Rental and Buy-to-Let Sector: Entering Calmer Waters

The buy-to-let market is forecasted to cool in 2026, with rental growth for new lets slowing to 2-2.5%, per Zoopla and Savills. "The balance between supply and demand is narrowing but remains tight," reports BuyAssociation Group, noting tenant demand above pre-pandemic levels but moderated by economic factors. Supply has increased by 15% in 2025, as amateur landlords exited and professionals stepped in, leading to rents rising only 2.2% annually.

For landlords, yields may face pressure from higher costs and regulations, with 11% planning sales versus 14% expansions. Tenants could benefit from improved affordability, but ongoing shortages may limit choices, especially in high-demand urban areas. Leaders predicts 3% national growth, lower in London, signaling a shift toward stability after years of rapid escalation.

Conclusion: A Balanced Path Forward

In summary, the UK property market enters 2026 with guarded positivity, transitioning from 2025's late-year softness to projected 2-3% growth fueled by lower rates, better affordability, and deferred demand. While regional disparities and policy shifts introduce uncertainties—particularly in London and rural areas—the fundamentals appear solid. As Tom Bill of Knight Frank summed it up, "Easing political uncertainty and lower mortgage rates should support a 3% rise by year-end." For buyers, sellers, and investors, staying attuned to interest rate movements and local trends will be key to navigating this evolving landscape. Whether you're a first-time buyer eyeing northern bargains or a landlord adapting to new rules, 2026 promises opportunities amid a more measured pace.