Daniel Chard, Partner at conveyancing specialist Bird & Co, shares his forecasts for the UK housing market and the trends he expects to shape 2026.
The housing market remains highly sensitive to wider economic conditions. Over the last year, homeowners and buyers have had to navigate falling but still elevated interest rates, a cooling cost-of-living crisis and fresh policy announcements from the new government.
As 2025 draws to a close, the picture is more balanced than it has been for some time: house prices have inched up, mortgage costs have eased, and first-time buyers are in a stronger position than they were just a few years ago.
In this article, we’ll look back at our 2025 housing market predictions and assess how accurate they proved to be. We’ll then outline our expectations for 2026, covering interest rates, property prices, demand, regional trends, the rental market, sustainable new builds, and the continued impact of AI on the property sector.
Housing Market Predictions 2025: Were We Right?
In our 2025 outlook, we suggested that:
- Mortgage and interest rates were likely to continue easing
- House prices would recover modestly after stabilising in 2024
- Demand and transactions would increase
- The rental market, sustainable new builds and AI-driven tools would remain important themes.
So, as 2025 comes to an end, how did those predictions measure up?
Mortgage Rates and Property Prices in 2025
Mortgage rates did fall, but more gently than many hoped.
The Bank of England’s base rate fell to 4% in August 2025, down from 5% a year earlier, and this reduction has begun to feed through into lower mortgage pricing across the market.
In our previous campaign, we cited 2024 data showing that the average five-year fixed-rate mortgage at a 75% loan-to-value was 4.7%, while the equivalent two-year fixed rate stood at 4.86%. The latest figures indicate that both have since fallen in the past year, with the five-year rate now at 4.21% and the two-year rate at 4.11% (as of 16 December 2025).
As Daniel explains, “We expected that rates would come down, but not crash. That’s more or less what happened. Borrowing is still more expensive than before the pandemic, but the sharp shock of 2023 has faded, and buyers can plan with a bit more confidence.”
House prices increased moderately, broadly in line with our forecast.
Figures from the official UK House Price Index show that the average UK house price stood at around £271,500 in early autumn 2025, up by roughly 2–3% on the previous year.
Families Leaving London and Regional Shifts in 2025
We previously suggested that the migration of families out of London would continue, driven by affordability, schools and quality of life.
Analysis from the Office for National Statistics, utilising regional price data and major lender reports, as well as regional housing market commentary, has revealed that some southern regions, including parts of London, have experienced weaker price growth or slight declines. This pattern may suggest that families and younger buyers are considering more affordable regions.
Demands and Transactions in 2025
Our prediction that demand and transaction levels would improve in 2025 was broadly right, but the recovery was steady rather than spectacular. Residential housing transactions have remained broadly stable over the past year. While seasonally adjusted figures show a small year-on-year dip, non-seasonally adjusted data indicates a modest increase, suggesting that overall activity has held up despite ongoing market pressures.
It is reasonable to conclude that as mortgage pricing eased and price expectations became more realistic, more buyers re-entered the market and chains began moving again.
The Rental Market and Landlords in 2025
Our prediction that the rental market would remain under pressure has also largely played out.
A recent ONS report on private rent and house prices shows rents continuing to rise more quickly than house prices in many parts of the UK during 2025, with annual rental inflation outpacing owner-occupier price growth and placing a strain on many tenants.
At the same time, ongoing regulatory change and energy-efficiency requirements have kept many landlords wary of expanding their portfolios, even though strong rental demand has helped to sustain yields.
Sustainable New Builds and AI in the Property Sector in 2025
We anticipated that sustainable new builds would become increasingly important and that AI would continue to be integrated into property services.
Both trends have gathered pace. Government guidance on the Future Homes Standard, which is beginning to reshape new-build regulations, is encouraging developers to adopt low-carbon heating systems and significantly higher energy-efficiency standards.
Furthermore, industry research compiled in UK proptech and AI adoption surveys shows AI has been used to analyse market data and forecast price trends. It also demonstrates that AI adoption has doubled amongst residential conveyancers in the last 12 months.
Housing Market Predictions 2026
So, having reflected on 2025, what might 2026 hold for the housing market?
When Will Interest Rates Go Down in 2026 – and What Will This Mean for Mortgages?
Most current forecasts suggest that interest rates are likely to edge down further over the course of 2026, but not return to the ultra-low levels seen in the 2010s. Economic forecasters quoted in financial press interest rate outlooks expect the Bank of England’s base rate to gradually fall from around 4% towards the low-to-mid-3% range by the end of 2026.
Of course, this is assuming that inflation continues to move closer to the 2% target and the wider economy avoids a major shock.
If those trends continue, we expect 2026 to bring a broader choice of competitively priced products. This should mean a more supportive environment for first-time buyers, particularly outside the most expensive parts of the South East.
House Prices Will Increase Moderately in 2026; “Micro-Location Premiums” Will Drive Value
After low single-digit gains in 2025, a slightly stronger but still controlled increase in 2026 looks plausible. Regional differences will succumb to micro-locations as buyers delve ever deeper into the folds of the market.
With buyers more knowledgeable and digitally empowered than ever, micro-location factors, such as specific school catchments, 15-minute neighbourhood amenities, EV-friendly infrastructure or even access to hyper-local green space, will increasingly dictate price performance.
As Daniel puts it: “Where buyers once compared towns or regions, they’re now comparing postcodes and even individual streets. The difference in demand between two areas half a mile apart can be astonishing.”
Housing Demand Will Increase in 2026
Recent press reports drawing on major lender research suggest a strong foundation for rising housing demand in 2026. Studies of first-time buyer affordability show that more first-time buyers entered the market in 2025, supported by improved affordability and lower mortgage costs relative to income—the best conditions seen in a decade. This renewed confidence is expected to carry forward into 2026, pushing demand even higher.
Looking ahead, demand is set to increase most sharply in areas that offer good value coupled with strong transport connections, quality schools and appealing local amenities. These locations have already attracted buyers moving away from higher-cost urban centres in recent years, and all signs indicate that this trend will strengthen as we enter 2026.
The Rental Market Will Stay Under Pressure
We expect rental markets to remain tight through 2026, particularly in major cities and university towns.
Rents have already been rising faster than house prices and general inflation in many areas, highlighting the continued imbalance between limited supply and strong tenant demand.
At the same time, the combination of persistently high rents and easing mortgage costs may prompt more long-term renters to consider buying, especially where competitive fixed-rate deals are available.
The Construction of Sustainable New Builds Will Accelerate in 2026
Sustainable new builds are set to move further into the mainstream in 2026.
Flagship schemes reported in the national press – for example, UK zero-bills home trials – provide an early glimpse of how sustainable communities may look over the coming decade, with on-site solar generation and battery storage designed to offset residents’ typical energy use.
AI Will Thrive, and AI-assisted Valuations Will Become an Industry Flashpoint
By late 2026, we think AI-assisted valuations tools will be both accurate and widely adopted, causing disputes over automated down-valuations or the transparency of algorithms.
Daniel comments: “AI valuations will bring consistency, but they’ll also create friction where sellers feel their home is worth more than the algorithm suggests. By 2026, this could be one of the biggest industry debates.”
A Positive Prognosis for This Year’s Property Market
Looking back, our 2025 predictions were largely borne out. Mortgage and interest rates eased, house prices rose modestly, housing demand and transactions recovered after a volatile start, and sustainability and technology became further embedded in the market narrative.
In 2026, we expect modest reductions in interest and mortgage rates, steady house price growth led by more affordable regions, increased first-time buyer activity as affordability improves, a still-pressured rental market that pushes some renters to buy, faster delivery of energy-efficient new homes, and broader use of AI across the property lifecycle.
For buyers and sellers, the key message is that stability is returning, even if challenges remain.
If you are planning to buy or sell property in 2026, Bird & Co’s conveyancing team is here to guide you through the process. You can call us on 01476 372 045, visit our contact page, or request a conveyancing quote online to discuss your plans for the year ahead.
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