Several factors will play into the state of the housing market next year, from interest rates to new tax policies, making the outlook for 2026 both complex and uncertain. According to UK Finance and Nationwide, who have released their forecasts for the year ahead, key trends include a slowdown in house sales, lower growth in mortgage lending, and a slight uptick in home repossessions. However, some signs point to a more stable property price trajectory as income growth outpaces house prices, providing hope for a gradual market recovery.
Affordability Pressures Weigh on House Sales
The ongoing challenge of affordability is set to weigh heavily on house sales in 2026. According to UK Finance, house sales are expected to dip slightly, with around 1.20 million transactions forecast for 2026, down from 1.21 million this year. The tight affordability of mortgages continues to be a significant concern, as high rates and high borrowing costs make it difficult for many would-be buyers to enter the market. As mortgage payments remain elevated, the gap between house prices and household incomes remains a considerable hurdle for potential buyers.
The mortgage market is also experiencing slower growth in new lending, which grew by 22% in 2025, primarily driven by a surge in house purchases before April’s stamp duty changes. However, this growth is expected to taper off in 2026, with an anticipated increase of just 2% in mortgage lending. The economic pressures on households, combined with persistently high mortgage rates, could further limit borrowing capacity for many would-be homeowners.
In addition, UK Finance reports that the number of fixed-rate mortgage expirations is expected to rise, with approximately 1.8 million mortgages set to expire in 2026. This shift may lead to increased remortgaging activity as homeowners seek to secure better rates, which could stabilise the market in certain sectors. Despite the strain on affordability, overall mortgage arrears are expected to improve, dropping by 5% in 2026 to a total of 87,500, signalling some relief for homeowners under financial pressure.
Repossessions Set to Rise, but Stay Low by Pre-Pandemic Standards
While house sales are expected to decline, repossessions are likely to increase slightly in 2026. UK Finance forecasts a 9% rise in repossessions, reaching 9,400 next year, compared to 8,600 in 2025. This uptick in repossessions comes as the industry returns to pre-pandemic levels of activity, with the courts and financial institutions processing cases more efficiently after pandemic-related delays.
Despite the expected rise, repossession numbers remain well below the levels seen prior to the COVID-19 pandemic. According to UK Finance, repossession should still be seen as a “last resort,” with lenders offering support to those struggling with their mortgages. The government and financial institutions continue to offer guidance and relief options, helping homeowners navigate tough times. Though repossession rates are rising, they remain relatively low in the broader historical context, reflecting the effectiveness of current lending practices and regulatory safeguards.
In contrast to the increased risk of repossession, Nationwide’s outlook for the housing market in 2026 presents a more optimistic scenario for property prices. With borrowing costs set to decline gradually and income growth outpacing house price rises, Nationwide predicts a modest 2-4% increase in house prices. However, the rise in taxes for buy-to-let landlords may dampen rental supply, which could keep pressure on rental prices, further complicating affordability for renters.
