Investing.com — UK residential property prices are forecast to post moderate growth in 2026, supported by rising incomes and favorable credit conditions, according to latest research note by UBS on Thursday.
The Bank of England reduced its base rate from 4% to 3.75% in December, with additional cuts anticipated in June and September that could bring rates down to 3.25%. This easing monetary policy is expected to reinforce affordability improvements as nominal wage growth outpaces house price increases.
Average advertised mortgage rates have declined from their October 2022 peak of nearly 6%, with typical two-year fixed rates now around 3.9%, down from 4.60% at the end of 2024. Lenders have begun repricing loans in anticipation of further monetary easing.
However, short-term buyer demand may face headwinds from renewed concerns about interest rates, particularly following higher energy prices. The economic backdrop is expected to remain soft, with GDP growth forecast to slow slightly and unemployment potentially edging higher to around 5%.
Annual house price growth slowed to 1.7% in November, well below the 20-year average of 3.3%. By property type, terraced houses are currently leading price performance, followed by semi-detached houses and detached houses. Flats and maisonettes have become the weakest segment, reversing pre-2020 trends.
Mortgage approvals remained steady at around 60,000 per month as of January, suggesting underlying market resilience despite weaker sentiment indicators from the Royal Institution of Chartered Surveyors.
Prime central London property values remain below previous highs, with average prices in the City of London at around £740,000 per dwelling, down from approximately £1,000,000 in January 2022.
Rental growth continues across the market amid constrained supply. Over the past five years, rental growth has been positive across all prime London areas, led by Belgravia and Marylebone.
The Budget’s High Value Council Tax Surcharge, effective April 2028, will apply to properties valued at £2 million or more. More immediately, landlords will no longer be able to serve new Section 21 no-fault eviction notices after April 30, as tenancy reforms in the Renters’ Rights Act come into force.
Consumer confidence remains subdued, with the GfK index at negative 19 in February. Wage growth has slowed to a three-year low at around 4% annualized, while inflation eased to 3% in January.
Despite near-term uncertainty, structural demand drivers including household formation and limited supply are expected to provide support for housing activity throughout the year.