Key Takeaways
- British house prices fell by 0.4% in December, resulting in the weakest annual growth since April 2024
- The annual growth rate was 0.6%, lower than the forecasted 1.2% increase
- Economists expect house prices to pick up in 2026 due to limited property tax rises and declining mortgage rates
- The average property price in the fourth quarter of last year was £273,077, with significant regional variations
- Northern Ireland saw the fastest price growth at 9.7%, while eastern England experienced the weakest performance with a 0.8% decline
Introduction to the Housing Market
The British housing market experienced a unexpected decline in December, with house prices falling by 0.4% and resulting in the weakest annual growth since April 2024. According to monthly figures from the Nationwide Building Society, the annual growth rate was 0.6%, which is lower than the forecasted 1.2% increase. This slowdown in the year-on-year growth rate can be attributed to strong price gains in December 2024, as well as the December 2025 price fall. Despite this, the number of mortgages approved remained similar to levels before the COVID-19 pandemic, indicating a steady demand for housing.
Economists’ Insights
Economists have weighed in on the situation, providing their insights on the current state of the housing market. Robert Gardner, Chief Economist at Nationwide, noted that the slowdown in the year-on-year growth rate was partly due to strong price gains in December 2024 and the December 2025 price fall. However, he also pointed out that affordability constraints have eased somewhat, thanks to price growth being below the rate of earnings growth and a steady decline in mortgage rates. This has helped to underpin buyer demand, and Gardner expects annual house price growth of 2-4% in 2026. Similarly, Elliott Jordan-Doak, an economist at Pantheon Macroeconomics, expects house prices to pick up in 2026 due to limited property tax rises and the improvement in affordability from the Bank of England’s cut to interest rates in December.
Regional Variations
The housing market in the UK is not uniform, with significant regional variations in house prices. The average property price in the fourth quarter of last year was £273,077, but this ranged widely from £168,317 in much of northern England to £529,372 in London. In fact, London saw a 0.7% increase in house prices over the past year, while Northern Ireland experienced the fastest price growth at 9.7%. On the other hand, eastern England saw the weakest performance, with a 0.8% decline in house prices. These regional variations highlight the complexity of the UK housing market and the need for nuanced analysis and policy-making.
Interest Rates and Affordability
The Bank of England’s decision to cut its main interest rate to 3.75% from 4% in December is expected to have a positive impact on the housing market. Financial markets expect one or two more quarter-point cuts in 2026, which should further improve affordability and boost buyer demand. As Elliott Jordan-Doak noted, the improvement in affordability from the Bank of England’s cut to interest rates in December will be more fully reflected in January’s data. This, combined with limited property tax rises, should help to support the housing market and drive growth in 2026.
Conclusion and Future Outlook
In conclusion, the British housing market experienced a slowdown in December, with house prices falling by 0.4% and resulting in the weakest annual growth since April 2024. However, economists expect the market to pick up in 2026 due to limited property tax rises and declining mortgage rates. The regional variations in house prices highlight the complexity of the UK housing market, and policymakers must take these variations into account when making decisions. As the housing market continues to evolve, it will be important to monitor interest rates, affordability, and regional trends to understand the outlook for the market and make informed decisions. With the average property price expected to continue growing, albeit at a moderate pace, the UK housing market is likely to remain a key area of focus for economists, policymakers, and buyers alike.