The next housing cycle will look rather different from the last. Lower mortgage rates should bring more buyers back into the market over the next few years. But in London and the South, where higher borrowing costs have collided with a steadily rising tax burden in the form of stamp duty, mansion and council tax, the recovery is likely to be gradual.
Over the course of 2026 mortgage rates have been moving in the opposite direction to what many had expected at the beginning of the year. Buyers have responded by stretching budgets, compromising on what and where they buy or, quite often, deciding to sit tight altogether.
But as we look towards the next five years, some of those pressures should begin to ease.
Our forecasts point to a housing market that gradually picks up pace, with price growth strengthening modestly as mortgage rates ease and affordability improves. We expect house prices across Great Britain to rise by 1.5% in 2027, 2.5% in 2028 and 2.0% in 2029, following growth of around 1.0% this year.
For London and much of Southern England, however, the recovery is likely to look rather different. Higher house prices mean buyers here have been more exposed to higher borrowing costs, while the burden of stamp duty and the wider taxation of property have added another layer to the affordability challenge. This means there is probably more room for recovery than headline prices initially suggest, assuming mortgage rates begin to fall.
Affordability is slowly being rebuilt
For much of the past four years, the housing market has been adjusting to rising interest rates.
In October 2026, monthly repayments on a typical home bought with a 75% loan-to-value mortgage over 25 years had reached £1,224, compared with £874 in 2019. This is a significant stretch on households' monthly finances.
Unsurprisingly, buyers have adapted. Some have downsized their ambitions, others have looked further afield, but many have postponed moving altogether.
We estimate that there will be around 100,000 fewer transactions in 2026 than we expected at the start of the year, largely because mortgage rates have risen higher than anticipated. However, our analysis also shows that homes going under offer have held up better than new buyer registrations this year, suggesting that those who need to move are still finding a way to do so. Discretionary buyers have been much more willing to wait.
Why mortgage rates could still ease
While the Monetary Policy Committee's (MPC’s) decision on 5 November to raise the Bank of England base rate from 3.75% to 4%, we believe that mortgage rates could still ease. Fixed deals are influenced by swap rates, which reflect expectations for future interest rates rather than simply today’s base rate. A widely anticipated increase does not automatically make new fixed mortgages more expensive.
Although the Bank expects inflation to rise further, Andrew Bailey, Governor of the Bank of England, stressed that this need not be the start of a long line of increases. We think fewer rises will ultimately be needed than markets have recently priced in. If recent falls in energy prices are sustained and wider price and wage pressures remain contained, expectations could shift, bringing down the wholesale funding costs that influence fixed deals. Competition between lenders should also help, although more persistent inflation would limit the scope for improvement.
Mortgage rates could therefore ease before the Bank starts cutting its base rate, bringing some postponed moves back onto the table. By the middle of 2027, we should also have reached the tail-end of households refinancing five-year fixed-rate mortgages taken out before rates began rising. Higher repayments will not disappear, but the refinancing shock that has hung over household finances and confidence for several years should begin to fade.
Even then, buyers will remain more price-sensitive than they were during the ultra-low-rate years. Mortgage rates are unlikely to return to the exceptionally cheap levels seen through much of the 2010s, which is likely to put a ceiling on how quickly prices can rise.
London has carried a heavier burden
London's relative weakness cannot be explained by mortgage rates alone. Over the last decade, the capital, and particularly prime London, has been on the receiving end of successive changes to property taxation and broader global d trends.
As prices rise, buyers move further up the stamp duty bands, while the additional rates paid on second homes have weighed disproportionately on markets with a larger investor presence. This in addition to fewer international buyers who have traditionally played a significant role in the prime central London housing market.
More recently, we've seen how the tax burden on higher value homes, has shifted to ownership as well as acquisition.
The High Value Council Tax Surcharge, or mansion tax, will apply from April 2028 to homes in England valued at £2 million or more, starting at £2,500 a year and rising to £7,500 for properties worth £5 million plus. It will sit on top of existing council tax and rise with inflation from 2029-30.
For prime markets, there was at least some relief in the 2026 Budget. The £2 million mansion tax threshold was not lowered, as had been rumoured, to £1.5 million. A lower threshold would have pulled a much broader group of London and South East homeowners into the new tax, including households for whom a valuable home does not necessarily translate into significant spare income.
Keeping the threshold at £2 million means the surcharge now applies to fewer than 1% of homes in England.
Even so, taxation will remain a much bigger consideration in prime markets than it was historically. For a buyer weighing up whether to trade one expensive London home for another, the calculation now means not just the mortgage but substantial stamp duty and, at the upper end, a higher annual property tax bill too.
This could change behaviour at the margins, encouraging some households to stay put for longer and making others much more selective about the price they are prepared to pay.
London finally has some room to recover
Against this backdrop, our expectation that London returns to price growth is not based on the assumption that these headwinds suddenly disappear. Most won't.
Instead, it partly reflects how much adjustment has already taken place.
London prices are forecast to end 2026 around 1.0% lower than a year earlier, before rising 2.0% in 2027 and 2.5% in 2028. By the end of 2029, we expect values to be around 5% above their 2025 level.
These are fairly modest numbers. But they follow an unusually long period of underperformance.
Over the last five years, consumer prices have risen by 21.8%, compared with house-price growth of 10.9% across Great Britain and just 0.9% in London. So, while London homes may not look dramatically cheaper in cash terms, the adjustment in real terms has been considerable.
London's premium over the rest of the country has narrowed too. Greater London home values are currently around 1.89 times those across England, down from a peak of approximately 2.31 times in 2016, taking the relative price of homes across the capital back towards levels last seen in 2011.
London is still an expensive city to buy property in, but the price premium commanded a decade ago has gradually been eroded, leaving it with a little more room to grow when affordability improves.
Why Inner and Outer London may follow different paths
Within London, we expect the recovery to be far from uniform.
Outer London prices are forecast to rise 3.0% in 2027 and 3.5% in 2028, compared with just 0.5% and 1.0% respectively in Inner London. Inner London prices are forecast to fall 4.5% this year and remain broadly unchanged in 2029.
This divide largely comes down to who buys where.
Outer London's market is more closely tied to domestic households whose purchasing power is sensitive to mortgage rate changes. As borrowing becomes a little cheaper, some of the affordability constraint that has held these buyers back should ease.
Inner London, and particularly prime central London, faces a more complicated set of pressures. Higher purchase and ownership taxes, weaker investor and international buyer demand is unlikely to disappear simply because mortgage rates fall. That is why we expect the recovery here to be much more tentative.
But there is also a base effect at work. Housing markets rarely sustain falling nominal prices indefinitely and, after several years in which prime central London's performance has been weak, progressively more of that adjustment is already reflected in today's values.
A market can remain fragile, price-sensitive and relatively subdued while house prices themselves stop falling. That is why our forecast for Inner London looks less like the beginning of a strong new growth cycle and more like the market gradually finding a floor.
The South has been adjusting too
A similar, if less pronounced, story is unfolding across Southern England.
We expect prices in both the South East and East of England to be broadly flat in 2026, followed by growth of 1.0% in 2027, 2.0% in 2028 and 1.5% in 2029. The South West looks a little stronger, with forecast growth of 0.5% this year, 1.5% in 2027 and 2.5% in 2028 before slowing to 1.0% in 2029.
This still leaves the South trailing many cheaper parts of Britain. Between the end of 2025 and 2029, we expect prices in the North East to rise by around 13%, compared with approximately 5% in London and 4.6% in both the South East and East of England.
Fundamentally, this is an affordability story. In an era of higher interest rates, every extra pound borrowed costs more to service, which naturally creates a bigger drag in markets where mortgages tend to be larger. Stamp duty works in much the same way: the higher the value of a home, the greater the cost associated with changing it.
The result is that the long-running narrowing of Britain's North-South house-price divide probably has further to run, even as markets in the South begin to recover.
More moves, rather than dramatically higher prices
The story we see emerging over the next few years, is one about a recovery in activity as much as prices.
We expect around 1.1 million home completions across Great Britain in 2027, rising to just under 1.2 million in 2028. Activity is then forecast to slip back towards 1.1 million in 2029.
Alongside improving mortgage affordability, we expect the new government back Your First Home scheme, tailored to first-time buyers, to support activity by helping more households take their first step onto the property ladder.
However, the market is unlikely to return to the turnover rates seen before the financial crisis, or to anything resembling the post-pandemic market of 2021.
Some of this is structural. Higher mortgage costs have made additional borrowing more expensive, while stamp duty makes moving particularly costly for households purchasing larger homes in London and the South. Someone who might once have moved for another bedroom, a bigger garden or a slightly shorter commute may increasingly decide that, once all the costs are included, the jump simply is not worth making.
For prime markets this is especially important. Improving mortgage affordability should bring some would-be movers off the sidelines, but it will not remove the substantial transactional costs faced by households towards the top end of the market.
The distinction between wanting to move and being prepared to pay the price of doing so may become one of the defining characteristics of the next housing cycle.
And then comes 2029
There is another reason we expect the relatively stronger growth of 2027 and 2028 to moderate towards the end of the decade.
Our transaction forecast falls back from just under 1.2 million completions in 2028 to around 1.1 million in 2029, reflecting the potential for political and election uncertainty to weigh on demand.
National elections matter to housing markets generally, but prime markets tend to be particularly sensitive to them. Buyers of more expensive homes typically have greater discretion over when they move and are often more exposed to possible changes in taxation. When an election brings uncertainty over future housing, wealth or property taxes, households typically hold tight or wait and see.
This is particularly the case in prime central London, where a relatively small change in the number of buyers prepared to transact can have disproportionate impact on activity.
So, while 2027 and 2028 should offer a clearer window for more activity, we think 2029 could feel rather more hesitant in the prime markets. That does not necessarily mean falling prices, but it could mean longer selling times and a renewed premium on realistic pricing while buyers wait for the political landscape to become clearer.
A different sort of recovery
For much of recent housing-market history, falling interest rates produced a fairly familiar chain of events. Buyers could borrow more, prices rose and London often sat towards the front of the pack.
The next few years are unlikely to be quite so simple.
The path of mortgage rates remains probably the single most important determinant of what happens next. If rates remain around 5%, rather than falling as we expect, the risk of small house-price falls in 2027 would increase significantly.
But lower rates are now pushing against stronger headwinds than they once did. Tax matters more, moving is more expensive, investors play a smaller role in parts of London and buyers have become cautious about what they are prepared to pay.
For London and the South, though, there is another side to that story. Years of weak nominal growth, and much steeper falls in real terms, have already done some of the work required to restore affordability.
That is why we expect prices to return to growth, even though many of the challenges facing the market remain.
This looks less like the beginning of another property boom and more like the start of a slower, more considered housing cycle. One in which London begins to find its feet again, but where affordability, taxation and politics will determine the pace of the recovery far more than they did in the era of cheap money.
