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Thinking about moving in 2026? After a year of uncertainty, the UK housing market is showing signs of cautious optimism. With inflation easing and interest rates starting to fall, experts believe confidence is returning – but affordability and regional differences remain key factors.
So, what does this mean for buyers, sellers and investors? From price forecasts to the impact of recent tax changes, here’s what you need to know about the property market as we head into the new year.
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UK house prices were fairly stagnant in the second half of 2025, after months of speculation about possible property tax rises ahead of the Budget in late November 2025.
Property search website Rightmove said this had an impact on both pricing and activity, as sellers had to try to entice nervous buyers waiting to see what was announced.
Average asking prices were 0.6% down in December 2025, compared with the same month in 2024, according to Rightmove, meaning that the average price was down £2,059 to £358,138.
With the Budget now out the way and the property tax situation clearer, property analysts are expecting a rise in activity in early 2026.
With the turkey and trimmings barely off the table, estate agents are anticipating a post-Christmas bounce as people head to property portals to browse listings and imagine how next year could look in a different home.
The property listings portal Zoopla said January is typically the most popular month for visitors to its website. It expects January will see listings and activity pick up again as buyer confidence returns. This ties in with the ‘Boxing Day Bounce’, a spike in online searches from 26th December and the fresh-start mindset that often comes with the start of the new year.
The government confirmed two changes in the Budget. One was a High Value Council Tax Charge from April 2028 (sometimes referred to as a ‘mansion tax’), where a flat-rate annual charge of £2,500 will apply on properties in England valued between £2 million and £2.5 million, rising to £7,500 a year for properties valued at over £5 million.
This may have the effect of making more expensive properties less appealing, even before the changes come into effect. Rightmove and some other industry experts have warned that changes at the top of the market can have “an inevitable trickle-down effect”.
According to Rightmove, less than 0.5% of all home sales agreed in 2025 have been for properties with an asking price of over £2 million, and around 1% of homes for sale are priced above this threshold. Before Budget day, sales of homes worth more than £2 million were already down 13% compared to the previous year, which may have been linked to rumours that there would have been a mansion tax.
The other Budget announcement was adding a 2 percentage point rise on income tax rates for landlords in England, Wales and Northern Ireland, meaning income tax rates for property income will be 22% at the basic rate, 42% at the higher rate, and 47% at the additional rate for the 2027/2028 tax year. Scotland sets its own income tax rates.
The increase in landlord tax will take effect in April 2027. It’s possible that some landlords will increase rents as a result, while others might decide to sell up and leave the housing market.
Nathan Emerson, chief executive of Propertymark, an industry body for estate agents and auctioneers, says many people are feeling a greater sense of confidence than a year ago. “With the autumn Budget now behind us and with many people having a clearer picture of what the forthcoming months now look like from a financial viewpoint, we hopefully should witness a positive start for the housing market as we head into early 2026.”
Inflation is easing, with the latest inflation figure down to 3.2% in November 2025, from 3.6% the previous month. Lower inflation is causing interest rates to fall, with the Bank of England reducing the base interest rate from 4% to 3.75% in December, the lowest rate in almost three years. Economists think interest rates will fall further in 2026 if inflation remains on a downward trajectory.
Falling interest rates could lead to more confidence in the housing market, and improve affordability as lenders reduce mortgage rates.
Jason Tebb, president of property search website OnTheMarket, says the five base rate reductions in the past 17 months have given a real boost to buyer and seller confidence and activity. Yet affordability remains a challenge and is keeping property prices in check to a degree.
The latest government house price data shows the average house price in England rose just 1.4% to £292,000 in the year to October.
However, the average UK house price conceals significant regional differences, with London values in particular recording a sharp contraction – falling 2.4% to £547,000 year-on-year.
“This is likely down to increased supply, low buyer demand and stretched affordability in London and the southeast where values are significantly higher than elsewhere in the country and buyers are constrained by higher mortgage rates than in the past, as well as higher living costs,” adds Tebb.
Nationwide, the UK’s biggest mortgage lender, expects UK house prices to rise between 2% and 4% in 2026.
Robert Gardner, Nationwide’s chief economist, describes the UK housing market as ‘resilient’ and believes properties are gradually becoming more affordable as wages rise and mortgage rates come down.
“Looking ahead, we expect housing market activity to strengthen a little further as affordability improves gradually (as it has been in recent quarters) via income growth outpacing house price growth and a further modest decline in interest rates,” says Gardner.
Mary-Lou Press, the president of the National Association of Estate Agents (NAEA), says the regional divide is set to persist in 2026, with more affordable markets in Scotland, Wales and the north of England expected to outperform London and the south, where higher prices and tax changes continue to weigh on demand.
“First-time buyers are well placed to benefit from stronger wage growth, improved affordability, and good levels of supply, while the introduction of the mansion tax is likely to add further drag at the top end of the market. Overall, 2026 appears set to be a year of cautious confidence, with realistic pricing and local market knowledge from reputable property professionals key to success.”
Zoopla says three-bed terraced properties are currently the most popular property type, while semi-detached homes are also selling well. These types of homes are popular with first-time buyers and growing families because they are more affordable than a detached house and have more longevity than a flat.
The average price of a semi-detached home in England rose by 3.8% annually to £290,000, the government data shows, and the average terraced price rose by 2.4% to £244,000. Detached homes rose by 1.1% to £470,000 but flats and maisonettes fell by 3.6% to £219,000.
‘Garage’ and ‘annexe’ were the most popular search terms in 2025, replacing ‘freehold’ as last year’s frontrunner.
High-value homes above £1.5 million have struggled in 2025, and may continue to face challenges in 2026 due to the upcoming ‘mansion tax’ on homes valued above £2 million that will come in in April 2028.
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