A low transaction, stagnant price housing market will continue next year
The UK housing market faces stagnation with low transactions and flat prices, while borrowers may see rising mortgage costs ahead. Discover more insights.
Our new home buyer affordability index shows that UK house prices are roughly 11% overvalued based on the affordability of mortgage payments, up from 4% before the conflict between the US and Iran began. This reflects a sharp increase in mortgage interest rates. Other affordability metrics have been stable , but weaker mortgage affordability has been the decisive factor in pushing down mortgage approvals.
Though we think the Bank of England will ultimately tighten policy by less than market pricing implies, it’s likely to be some time before swap rates drop back. We expect wage growth will stay subdued, so mortgage affordability will remain stretched and this will keep residential transactions low in 2027.
There’s no evidence that higher interest rates are increasing levels of financial stress among existing borrowers. A lack of forced sales, less trading up, and low levels of housebuilding will reinforce the downward pressure on transactions. Low supply will also mitigate the impact of subdued demand on house prices, and we expect prices to remain broadly flat in cash terms over the coming year.
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