House prices in the UK are projected to decline by 2% in 2026, according to a revised forecast from Savills. This shift from a previous expectation of 2% growth highlights the impact of rising mortgage costs on buyer demand, as households face increased financial pressure from higher borrowing rates and ongoing inflation.
What Factors Are Driving the Decline in House Prices?
The anticipated drop in house prices is largely attributed to escalating mortgage rates, which have surged since late February. Savills notes that the current economic climate, influenced by geopolitical tensions, particularly in Iran, has exacerbated inflation, leading to higher borrowing costs. This scenario has altered the short-term outlook for the housing market, dampening buyer sentiment and demand.
How Will House Prices Recover After 2026?
Despite the projected decline in 2026, Savills forecasts a return to price growth in subsequent years. After the 2% drop, house prices are expected to rise by 2.5% in 2027, followed by 5% in 2028, and 6% annually in both 2029 and 2030. By the end of this forecast period, average UK house prices could increase by approximately 18.5%, equating to an estimated £67,000 rise based on current values. This recovery is anticipated as economic conditions improve and affordability pressures ease.
What This Means for Borrowers and Investors
For borrowers and investors, the current environment presents both challenges and opportunities. The immediate impact of rising mortgage rates means higher monthly payments and potentially reduced purchasing power for new buyers. However, the forecasted recovery in house prices may offer long-term benefits for those who can navigate the current market. Investors in regions like the North of England, Scotland, and Wales may find better opportunities as these areas are expected to outperform southern markets while mortgage rates remain elevated.
What Should Homebuyers Watch For?
Homebuyers should keep a close eye on mortgage rates and economic indicators, as these will significantly influence the housing market in the coming years. With the Bank of England’s base rate projected to decrease from 3.75% at the end of 2026 to 2.5% by 2030, and average mortgage rates expected to fall from 4.78% to 3.5%, potential buyers may find more favourable conditions for securing mortgages in the future. Monitoring inflation trends will also be important, as a prolonged conflict in the Middle East could further impact economic stability and interest rates.
Frequently Asked Questions
Will house prices continue to fall after 2026?
After a projected 2% decline in 2026, house prices are expected to recover, with growth anticipated in subsequent years, reaching an increase of 18.5% by 2030.
How do rising mortgage rates affect buyers?
Rising mortgage rates increase borrowing costs, which can limit purchasing power for buyers and dampen demand in the housing market.