Key Takeaways
- British house prices rose by a slower-than-expected 0.3% in the 12 months to December, the weakest annual increase since March 2024.
- Prices unexpectedly fell in month-on-month terms, dropping by 0.6% in December after falling 0.1% in November.
- Economists had forecast prices would be 1.1% higher than a year earlier and rise 0.2% on the month.
- A combination of lower mortgage rates and modest growth in property prices improved affordability for first-time buyers.
- The house price to income ratio was at its lowest in over a decade in December.
Introduction to the Housing Market
The British housing market has experienced a slowdown in growth, with house prices rising by a slower-than-expected 0.3% in the 12 months to December. This is the weakest annual increase since March 2024, according to mortgage lender Halifax. The market has been overshadowed by economic and tax uncertainty, leading to a decrease in prices. In December, prices fell by 0.6% after a 0.1% fall in November, contrary to economists’ forecasts of a 1.1% increase than a year earlier and a 0.2% rise on the month.
Uncertainty in the Market
The uncertainty in the market has been attributed to various factors, including economic and tax uncertainty. Amanda Bryden, head of mortgages at Halifax, stated that while December’s monthly fall in prices was likely related to uncertainty in the latter part of the year, this should now be starting to unwind. However, Matt Swannell, chief economic advisor to the EY Item Club, a forecasting group, does not expect much improvement in affordability. He cited the loosening in the labour market, which would likely slow wage growth, and limited scope for big falls in mortgage rates in 2026.
Interest Rates and Affordability
The Bank of England cut interest rates to 3.75% from 4% in December, and investors are pricing in one or two more quarter-point cuts this year. Despite this, Swannell said, "It looks very likely interest rates will be cut less this year than they were last year." A combination of lower mortgage rates and modest growth in property prices has improved affordability for first-time buyers, with the house price to income ratio at its lowest in over a decade in December. However, Swannell’s comments suggest that this improvement may be short-lived.
Regional Variations
House prices in London dropped by 1.3% from 12 months earlier, while the strongest growth was reported in Northern Ireland, where prices rose by 7.5%. This regional variation highlights the complexities of the British housing market. Halifax’s data chimed with rival mortgage lender Nationwide’s measure of house prices, which fell by 0.4% in December alone, while its estimate of annual house price growth was the weakest since April 2024.
Forecast for 2026
Halifax expects annual house price growth of 1-3% in 2026. A Reuters poll of property market experts conducted in December showed British home prices were expected to rise by 2.8% in 2026, speeding up from a full-year rise of 2% in 2025. However, these forecasts are subject to change based on various economic factors, including interest rates and wage growth. As the market continues to evolve, it is essential to monitor these factors to understand the trajectory of the British housing market.
Conclusion
In conclusion, the British housing market has experienced a slowdown in growth, with house prices rising by a slower-than-expected 0.3% in the 12 months to December. The market has been overshadowed by economic and tax uncertainty, leading to a decrease in prices. While affordability has improved for first-time buyers, the outlook for 2026 is uncertain, with forecasts suggesting a range of possible outcomes. As the market continues to evolve, it is essential to monitor economic factors, including interest rates and wage growth, to understand the trajectory of the British housing market.