Will higher mortgage rates sour the spring bounce?

Spring 2026

MARKET ACTIVITY LIFTS INTO SPRING, BUT HIGHER RATES CLOUD THE OUTLOOK

Activity in the housing market picked up as spring approached, easing some of the gloom that followed the Autumn Budget. Lower mortgage rates earlier in the year helped to revive sentiment, improving affordability and encouraging more buyers back into the market, particularly in London and the South.

However, this recovery remains tentative. Mortgage rates rose swiftly towards the end of March, and this renewed pressure on borrowing costs risks slowing momentum just as confidence had begun to improve. Reflecting this, the number of new homes coming to market, which had risen in January and February, fell back in March.

Inflation remains a key source of uncertainty. Rising energy prices, alongside higher mortgage costs linked to ongoing geopolitical tensions in the Middle East, could keep inflation elevated and constrain the scope for looser monetary policy. Against this backdrop, the Bank of England held the base rate at 3.75% in March. The unanimous decision by the Monetary Policy Committee has fuelled speculation that interest rates may rise further this year, rather than fall as previously anticipated.

MORTGAGE PRESSURES DIVERGE SHARPLY BY HOUSEHOLD

Many homeowners coming to the end of two year fixed mortgage deals continue to benefit from refinancing at rates below those they secured in 2024, although the scale of those savings has diminished. By the end of March, refinancing typically delivered a modest 1–2% reduction in monthly repayments.

"This tentative recovery could be slowed if inflation moves persistently upwards, sparked by rising energy and mortgage costs stemming from the war in the Middle East. "

In contrast, households rolling off five year fixes face a more challenging adjustment. Those who locked in low rates in 2021 are now remortgaging into a significantly higher rate environment. By the end of March, the typical household in this position faced a 17% increase in monthly repayments, equivalent to around £102 a month.

GREATER CHOICE SUPPORTS BUYER ENGAGEMENT

Despite these pressures, there are signs of resilience in buyer activity. The number of homes available for sale is around 50% higher than at the same point in 2019, offering prospective movers more choice than at any time in the past decade.

Buyer registrations rose during the first quarter, reaching their highest level since 2022, although numbers levelled off towards the end of March. Interest has been particularly strong in London, where registrations remained higher than a year earlier even as mortgage rates increased. Notably, there were more people searching for a home in the capital than in 2019, when borrowing costs were broadly comparable with today.

There are also early indications of improving demand elsewhere. Across England and Wales, sales agreed in March were 12% higher than a year earlier, albeit compared with a subdued period last year when transaction volumes were affected by the end of the stamp duty holiday.

Encouragingly, newly listed homes are attracting attention quickly. Around 90% of properties coming to market in the first weeks of the year have received a viewing, compared with 86% a year earlier. Half have gone on to receive an offer, up from 48% in the same period last year.

"55% of homes that sold during March were first listed in 2025"

PRICING REMAINS DISCIPLINED

While conditions have improved, pricing power remains limited. The majority of homes continue to sell below asking price, reflecting a market that remains cautious and price sensitive.

In March, 68% of homes sold for less than their original asking price, slightly higher than the 66% recorded in January but down from 71% in the final quarter of 2025. The average discount agreed from the initial asking price has narrowed, falling to 4.7% in March from 5.6% late last year, when buyers held greater negotiating leverage.

The most resilient part of the market remains homes priced between £250,000 and £500,000. These properties, typically sought by first time buyers and second steppers, achieved an average discount of just 4.0% in March. This resilience is notable given that these groups are among the most exposed to recent increases in mortgage rates.

LONDON SHOWS EARLY SIGNS OF STABILISATION

London continues to display cautious improvement. Registrations in Outer London rose by 2% year on year in March, the strongest increase of any region in England and Wales. Inner London has also seen a modest uplift, with registrations up 1% compared with a year earlier, despite the headwinds created by higher stamp duty and recent tax changes.

Uncertainty surrounding the Autumn Budget, including the announcement of a future mansion tax, led to a build up in available stock across the capital last year. However, turnover has improved - 55% of homes sold in March were first listed in 2025, indicating that excess supply is beginning to clear.

That said, pricing continues to reflect fragile confidence. Homes priced above £1 million in London and other regions sold at an average discount of 6.6% to their original asking price. Properties valued at more than £2 million — the segment affected by the proposed mansion tax — are particularly exposed. Although the tax will not be introduced until 2028, buyers are already factoring it into negotiations, pushing prices lower.

Elsewhere in the South, applicant registrations held up across both the South East and South West during March. However, further improvement in sentiment is likely to depend on the direction of interest rates.