Welcome to the first property market update of 2026. After a year of economic uncertainty, budget speculation, and fluctuating interest rates, the UK housing market has proven remarkably resilient. Here’s what happened in 2025 and what we can expect in the months ahead.
A Year of Two Halves
2025 was characterised by contrasting market conditions. The first half saw strong activity, with new sellers up 9% and buyer demand rising 3% compared to the previous year. However, the second half told a different story, with new listings down 4% and demand falling 6% as Budget uncertainty took hold.
Despite this slowdown, the market held firm. Transaction volumes reached approximately 1.2 million for the year, representing a 9% increase on 2024 and comfortably in line with the ten-year average.
Stock Levels and Pricing Strategy
Property stock levels rose throughout 2025, reaching their highest point since November 2013 and sitting 21% above the 2020-2025 average. This wasn’t enough to create oversupply, but it did shift the balance of power slightly towards buyers.
The market has clearly operated on two speeds. Properties priced correctly from the outset sold quickly and achieved strong prices. Those priced too high faced extended marketing periods, with unsold properties now spending an average of 179 days on the market, seven days longer than at the end of 2024.
The lesson remains clear: pricing strategy determines success.
Interest Rates and Mortgage Costs
The Bank of England cut the base rate to 3.75% in December, dropping below 4% for the first time since early 2023. This marked the fourth cut of 2025, bringing rates down from their peak of 5.25% in August 2023.
Mortgage rates responded positively. Average two-year fixed rates fell from 5.06% at the start of 2025 to 4.31% by year-end, whilst five-year fixes dropped from 4.82% to 4.39%. Both reached their lowest levels since September 2022.
For borrowers, this translates to real savings. Someone taking out a mortgage in late 2025 compared to the start of the year would save around £25 per month for every £100,000 borrowed over 25 years.
However, it’s important to manage expectations. Mortgage rates are unlikely to return to the ultra-low levels seen during the 2010s and pandemic years. The market is settling into a new normal where 4% to 4.5% mortgages are the reality.
The Budget Impact
Much of 2025 was dominated by speculation over the Autumn Budget. When it finally arrived in November, the impact was less severe than feared. Post-Budget surveys showed that 50% of those planning to move reported no change to their plans, whilst 6% actually accelerated their intentions.
The early spring Budget scheduled for 3rd March 2026 should allow the prime selling season to unfold without the uncertainty that characterised late 2025.
House Price Performance
House price growth slowed throughout 2025. Nationwide reported annual growth declining from 4.7% at the end of 2024 to just 0.6% by December. Rightmove recorded asking prices ending the year 0.6% lower than 2024, though Zoopla reported a modest 1.1% annual increase.
Despite the slowdown, UK house prices finished 2025 just £2,252 below their record highs, demonstrating remarkable stability given the economic headwinds.
First-Time Buyers Lead the Way
One of 2025’s standout stories was the strength of first-time buyer activity. Numbers reached their highest level in over a decade, with approximately 390,000 first-time buyers entering the market. They accounted for two in five sales, borrowing a record £82.8bn in mortgage debt.
This surge was supported by improved affordability as wage growth outpaced house price growth, along with relaxed lending criteria and family financial support. Nearly one in five homeowners received help from family or friends, with first-time buyers receiving an average of £76,239.
Looking Ahead to 2026
The outlook for 2026 is cautiously optimistic. Major forecasters predict steady, modest growth:
- Rightmove expects asking prices to rise by 2%
- Zoopla forecasts 1.5% price growth with around 1.18 million transactions
- Nationwide anticipates annual growth between 2% and 4%
- Halifax predicts gradual price increases with steady market activity
Several factors support this positive outlook:
Interest rate trajectory: Further modest cuts are expected, with markets pricing in at least one more reduction, likely in June.
Improved affordability: House prices relative to average incomes are at their strongest since late 2015, whilst mortgage costs as a share of income are at their lowest in around three years.
Regulatory changes: The relaxation of mortgage lending criteria provides clearer pathways to homeownership for many previously excluded households.
Supply shortage: Just 208,000 homes were approved for construction in the last year, dramatically short of the 300,000 government target. This fundamental imbalance continues to support house prices.
Pent-up demand: Post-Budget clarity and the end of Christmas should release buyers who delayed decisions in late 2025.
The Challenges
Not everything points in a positive direction. Around 1.8 million fixed-rate mortgages are due to expire in 2026, with many homeowners refinancing onto rates significantly higher than their current deals. Whilst the rate-cutting cycle helps, it won’t eliminate the payment shock for those coming off deals struck in 2020 or 2021.
Additionally, affordability remains tight for many potential buyers. Even with falling rates, mortgage payments remain stubbornly high relative to incomes compared to historical norms.
Final Thoughts
After years of economic shocks including Brexit, the pandemic, the war in Ukraine, and the mini-budget turmoil of 2022, the UK property market has settled into a surprisingly stable environment. The market has managed the transition to higher interest rates without serious dislocation, and activity levels remain healthy.
As we move into 2026 with Budget uncertainty behind us and mortgage rates continuing to fall, the foundations are in place for sustained, modest growth. This won’t be a spectacular boom, but rather steady progress built on demographic necessity and fundamental supply-demand imbalances.
For buyers and sellers, the message is clear: this is a market that rewards realistic pricing, careful planning, and decisive action when the right opportunity presents itself.
If you’re considering buying or selling in 2026, we’d be happy to discuss how these market conditions affect your specific situation. Get in touch with our team for a no-obligation consultation.