A market that mirrors the nation’s mood
The housing market has long been a barometer of confidence, reflecting the interplay among economic conditions, political factors, and household sentiment. On the surface, the outlook feels reassuring: inflation is cooling, mortgage rates are edging down, and affordability is improving. But beneath that lies a market shaped by deeper forces - tax policy that constrains mobility, political uncertainty that clouds the horizon, and a regional power shift that challenges London’s long-standing dominance. This shapes not just prices, but the very decisions households make about moving.
2026: rates ease, growth holds
We expect inflation to fall faster than anticipated next year, paving the way for two or three base rate cuts. By year-end, the Bank Rate could settle around 3.25%, with mortgage rates stabilising near 4%. This should boost the availability of sub-4% mortgage deals, even for borrowers with smaller deposits, easing affordability pressures.
Earnings growth is set to continue outpacing inflation, and for some households rolling off high fixed rates taken out two years ago, monthly payments will fall. Yet others are still adjusting to higher costs, particularly the 600,000 borrowers on sub-3% five-year fixes due to expire in 2026 and 2027.
Against this backdrop, price growth will be modest but positive. Based on the ONS House Price Index, we forecast a 2.5% rise across Great Britain in Q4 2026, with the Midlands and North leading the charge thanks to stronger affordability.
Transaction volumes are expected to hold steady at 1.15 million in 2026, supported by necessity-driven moves - growing families, relocations - rather than discretionary purchases. The absence of a stamp duty cut, traditionally a catalyst for activity, means sentiment will lean heavily on the economic fundamentals.
London & Prime markets: a recovery delayed
At this stage in the cycle, we would typically expect the London market to regain momentum. Historically, the capital leads recoveries once affordability improves, but this time the rebound looks muted.
Since 2016, London has underperformed the rest of Great Britain, and our forecasts suggest that trend will persist. Growth is expected to flatline in 2026, held back by tax changes and political uncertainty.
The prime market is particularly subdued. The decision to raise Stamp Duty Land Tax earlier this year - combined with wider tax concerns, including changes to non-dom status and speculation around capital gains and inheritance tax - has created a challenging backdrop for high-value markets.
The new council tax surcharge on properties worth £2m+ adds another layer of cost, further dampening sentiment. While small price falls are expected in the £1.9m+ segment, this is likely to be offset by growth in the mainstream London market, where improving affordability and easing mortgage rates are starting to support buyer confidence.
For prime country markets, where council tax bills are already high, the surcharge could bite harder. Properties above the £2m mark could see around a 5% price correction, but this is expected to be a one-off adjustment rather than a prolonged decline, as markets absorb the change and stabilise. UK tax rates remain lower than many European and US equivalents.
One growing challenge is the lack of price growth for higher-value homes. In 2025, 14% of London sellers sold at a loss - up from 6% in 2016 - discouraging mobility. As a result, the London market is increasingly being driven by first-time buyers, who accounted for 50% of homes sold in the capital this year.
The regional power shift
Perhaps the most striking trend is the changing geography of growth. Since prices bottomed out in 2010, London has been the star performer. But next year could mark a turning point: the East Midlands is forecast to overtake London in cumulative growth, with the North West and West Midlands following by 2027.
By 2028, Great Britain’s average price will have risen 84% since 2010, reaching £289,500. The East Midlands will lead with 94%, followed by the West Midlands (90%) and North West (88%). London will slip to fourth place - and remain the only region where prices sit below their 2022 peak. This reflects a fundamental shift: affordability and economic resilience now trump historical prestige.
2027–2028: politics takes centre stage
If 2026 is about stability, the years beyond could bring about more uncertainty. Inflation is expected to remain above target, and mortgage rates could edge higher in 2027 as markets price in future rate rises. Price growth across Great Britain will slow to 2.0% in Q4 2027 and 1.5% in Q4 2028.
Political risk looms large. The planned 2029 election will likely cast a long shadow, particularly over prime markets, where sellers tend to be more cautious about these potential changes. Tax policy is increasingly acting as a levelling mechanism, curbing recovery in London and the South. London may see 1.0% growth in 2027 before stalling again in 2028.
In real terms (i.e. adjusted for inflation), house prices will underperform as affordability remains stretched and wage growth uneven, especially for first-time buyers and renters.
Regionally, the North East is set to outperform, with cumulative growth of 16.4% over the forecast period, followed by Scotland (13.6%) and Yorkshire & Humber (12.5%). These regions are in catch-up mode after years of lagging behind.
Transactions: fewer moves, bigger decisions
Transaction volumes are forecast to rise slightly to 1.2 million across Great Britain in 2027, before dipping back to 1.15 million in 2028 as political uncertainty ahead of the 2029 election leads to a slight pause, particularly in prime markets. Overall, the market is expected to become increasingly sentiment-driven, with volatility around key political events.
Over the long term, even as prices have risen, people are moving less often. Despite a 10% increase in owner-occupied households since 2008, transaction volumes remain 19% below pre-crash norms.
Tax barriers are a major culprit. Without today’s significant tax barriers, we would expect around an extra 100,000 moves each year. Abolishing it entirely could push transactions above 1.4 million regularly - a level last seen during the post-pandemic surge in 2021.
Instead, households are making bigger, more “future-proofed” moves when they do transact. This trend reflects a market increasingly shaped by pragmatism rather than aspiration - a theme that will define the next phase of the cycle.
