All of that points to the continuation of a price-sensitive market and the prospect that values continue to fall in real terms over the course of this year.
The extent to which this translates into nominal price falls depends on an ever evolving set of geopolitical circumstances.
In the meantime, it’s likely to make lenders more cautious about the terms on which they supply mortgage debt. This will especially impact higher loan-to-value lending, which played a major role in robust first-time buyer activity in 2025.
Prime Expectations
What then of prime property? For much of 2025, a cloud of uncertainty hung over the top end of the market as prospective buyers and sellers waited to see what the Chancellor would unveil in the Autumn Budget. As it transpired, a High Value Council Tax Surcharge was as close to the least worst outcome as we might have hoped for. And so we expected a bounce in activity in the early part of this year.
Sustaining that momentum will now prove more challenging as we head into the spring market.
This said, recent events will, in all likelihood, enhance the UK’s safe haven credentials – especially those of an attractively priced prime central London market.
Of course, that needs to be put in the context of the changed tax environment.
As a result, we are more likely to see overseas buyers looking for a potential London bolthole than the return of non doms. And the associated stamp duty liability is likely to temper any impact on values, with early evidence that it is pushing some of that demand into London’s prime rental markets.
Historically, Middle Eastern buyers have also been more active in the country house market than other nationalities, raising the prospect of increased activity in a sub market that has been subdued of late.
Disruption has accompanied the UK housing market almost constantly over the past four years. And that has continued in 2026, despite our hopes that it would be a relatively uneventful year.
The expectation was that a gradual easing in inflation would pave the way for further cuts in the bank base rate which would readily be reflected in mortgage costs.
That expectation has seemingly been dashed by events in the Middle East and the prospect of another bout of increased inflation.
Today, the nine members of the MPC voted unanimously to hold the bank base rate at 3.75%. Indeed, there is a possibility that it will now end the year higher than it started.
But this will depend on how long oil prices stay at elevated levels, meaning the prospects for the UK housing market are to a greater or lesser degree dependent on events 2,400 miles away.
Mortgage Rates
All of that has been quickly priced into the cost of fixed-rate mortgages. Since the beginning of February, the cost of a 75% loan-to-value fixed-rate mortgage with Nationwide has risen from 3.78% to 4.45% at a time when 10-year gilt yields have risen back up to 4.8%.
That has depleted the purchasing power of the average UK buyer, quickly reversing some of the improvements in affordability that we have seen over the past two and a half years. But, much as was the case in late 2022 and 2023, many UK homeowners remain partly insulated from the recent rise in mortgage costs.
The extensive use of fixed-rate mortgages reduces the short-term exposure to shocks of this nature, while the stress tests required by mortgage lenders (that have only recently been relaxed) also mean the housing market has a built-in affordability cushion.
Mainstream Sentiment
All of this said, the latest bout of disruption comes at a time when confidence in the market was already finely balanced. In fact, in the eight months leading up to recent events, chartered surveyors consistently reported that new buyer enquiries were falling – indicating a more measured level of demand.
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