House prices in the UK are projected to decline by 2% in 2026, as rising mortgage costs dampen buyer enthusiasm, according to a revised forecast from Savills. This marks a notable adjustment from their earlier prediction of a 2% increase for the same year, highlighting the growing strain on household finances due to elevated borrowing costs and ongoing inflation.
What Factors Are Driving the Decline in House Prices?
Several elements are contributing to the anticipated drop in house prices. The primary factor is the increase in mortgage rates, which have risen significantly since late February 2026. This surge in borrowing costs has led to a decrease in buyer sentiment and demand, which is expected to persist throughout 2026. Additionally, escalating tensions in Iran have exacerbated inflation, further influencing the mortgage market.
How Will House Prices Recover After 2026?
Despite the short-term forecast indicating a decline, Savills maintains a positive long-term outlook for the housing market. They predict a gradual recovery beginning in 2027, with house prices expected to rise by 2.5% that year, followed by increases of 5% in 2028 and 6% annually in both 2029 and 2030. By the end of the decade, average UK house prices could rise by approximately 18.5%, which translates to an increase of around £67,000 based on current values.
What This Means for Borrowers and Investors
For borrowers, the current environment poses challenges, particularly for those looking to secure new mortgages. Higher mortgage rates are likely to limit affordability and reduce the number of potential buyers in the market. However, the longer-term forecast suggests that as inflation stabilizes and mortgage rates decline—from an expected 4.78% in 2026 to 3.5% by 2030—affordability may improve, potentially reviving buyer interest.
Investors should also take note of these trends. The North of England, Scotland, and Wales are projected to outperform the more expensive southern markets, benefiting from stronger affordability levels as mortgage rates remain elevated. This shift could present opportunities for investors looking to capitalize on regional disparities in the housing market.
What Should Homeowners Watch For?
Homeowners should keep an eye on the evolving economic conditions that could affect the housing market. Savills warns that prolonged conflicts in the Middle East could further fuel inflation and push interest rates higher than currently anticipated. Monitoring inflation trends and the Bank of England’s base rate, which is expected to decrease from 3.75% at the end of 2026 to 2.5% by 2030, will be essential for understanding future mortgage conditions.
Frequently Asked Questions
Will house prices continue to fall beyond 2026?
While house prices are expected to fall by 2% in 2026, Savills forecasts a recovery starting in 2027, with prices projected to rise significantly by 2030.
How will rising mortgage rates affect buyers?
Rising mortgage rates are likely to dampen buyer demand, making it more challenging for potential buyers to enter the market due to reduced affordability.