Next year will see either the first increase or the first fall in UK house prices over five consecutive years. Robert Gardner, chief economist at Nationwide, estimates a rise capped at no more than 2% to 4%. At least affordability is getting a little better, due to increasing wages and falling interest rates. First-time buyers will soon benefit from these much-needed, positive changes.
As of November, the average home price in the UK had reached £272,998. If we assume a 4% annual increase, this could raise this amount to around £283,918 by 2026. The typical first-time buyer borrowed a record-high £210,800 over the year to September. This is a significant reversal from a trend over the prior decade wherein new homeowners were assuming smaller mortgages relative to their incomes.
In northern England, the average home price is now almost 58% of what you will get in their southern counterparts. This highlights an immense regional inequity in housing expenses. While the national average has grown steadily, annual house price growth has decelerated from 4.7% at the end of 2024 to just 1.8% by November 2025. As growth declines this might nudge a few more buyers to go ahead and buy with prices largely unchanged.
Recent interest rates further compound the way buyers are currently acting. On Monday, the average quoted rate for a two-year fixed mortgage reached 4.84%. In the meantime, five-year fixed rates are slightly higher at 4.91%. That’s especially significant, given how many lenders have recently tightened their stress testing criteria. These new criteria effectively confine them to lending no more than 4.5 times the income of their borrowers. The Financial Conduct Authority (FCA) noted that its current stress testing approach “may be unduly restricting access to otherwise affordable mortgages.”
The FCA has announced measures to help first-time buyers and the self-employed more easily get mortgages. We will continue to engage on the direction of the mortgage market. Our new proposal is to reduce burdensome rules and develop more flexible, innovative products that better serve people with varying incomes and work statuses across multiple stages of life.
Robert Gardner emphasized the positive outlook for the housing market, stating, “We expect housing market activity to strengthen a little further as affordability improves gradually via income growth outpacing house price growth and a further modest decline in interest rates.”
Matt Smith, an analyst, added further insights into buyer conditions, noting that “those who are seeing slightly lower house prices in their area compared to last year and may have had an end-of-year pay rise, will see their affordability improved further.”
Independently, separate estimates from property website Rightmove point to an even more conservative prediction, calling for just a 2% increase in house prices through 2026. Even so, the mood is still bullish all around as buyers grapple with a dynamic economic environment and the ongoing evolution of the mortgage marketplace.