Unemployment in the UK has been climbing steadily, and experts warn that the trend could lead to a slowdown in the housing market. With job losses expected to rise in 2026, the impact on property prices may become increasingly significant, particularly for first-time buyers and those already struggling with affordability.
The rise in unemployment has already caught the attention of economists, with the latest figures showing a sharp increase over the past 14 months. The UK’s jobless rate climbed from 4.1% in August 2024 to 5.1% in October 2025, and this is expected to continue its upward trajectory. As unemployment rises, it could lead to decreased demand for housing and a potential dip in property prices, much like the financial crisis of 2008. Here’s why this economic shift is significant and how it may shape the housing market.
Why Is Unemployment Rising?
There are several key factors driving the rise in unemployment. According to Mark Cunningham, a partner at Blick Rothenberg, the government’s recent policy decisions are playing a role. Increases to the national minimum wage and higher National Insurance contributions for employers have made it more expensive to hire workers. These changes, coupled with the passing of the Employment Rights Bill in December 2025, have led to a sharp rise in joblessness, particularly among younger workers. Almost 40% of people aged 18 to 24 are now unemployed, a significant jump that could further affect the housing market.
Moreover, businesses are becoming more reluctant to hire due to the growing use of artificial intelligence (AI). The governor of the Bank of England, Andrew Bailey, recently pointed out that AI could have a similar impact on the job market as the industrial revolution. As companies look for ways to cut costs, they are investing in automation, resulting in fewer job openings. This combination of policy shifts and technological advancements is likely to increase job insecurity and, in turn, contribute to higher unemployment rates in the near future.
Impact of Rising Unemployment on the Housing Market
Unemployment and housing are closely linked, as having a stable income is crucial for securing a mortgage. According to Peter Stimson, director of mortgages at MPowered Mortgages, fewer people will be able to obtain a mortgage as unemployment rises, leading to reduced demand for homes. This can ultimately result in a slowdown in property price increases.
In particular, first-time buyers are likely to be hit hardest. The fear of losing a job can deter potential buyers from entering the market, reducing overall demand. AI’s impact on graduate job opportunities could also further dampen demand among younger professionals, who have traditionally made up a significant portion of first-time homebuyers. As Stimson points out, “If this trend continues, we could see demand for first homes – which are often seen as the key to the housing market – slide.“
The last major period of rising unemployment, during the 2008 financial crisis, saw a sharp drop in house prices. While the current situation does not mirror the scale of the 2008 crisis, any further job losses could still destabilise the housing market. According to Paula Higgins, founder of HomeOwners Alliance, labour market shocks like these are more damaging than interest rate hikes alone, as they affect both demand and the number of forced property sales.
The housing market’s response to these economic pressures remains to be seen, but experts agree that a significant rise in unemployment will likely dampen consumer confidence. As Stimson notes, “The chilling effect that rapidly rising unemployment has on demand could be significant.” The ultimate impact on property prices, however, will depend on how both the government and the Bank of England respond to these challenges.
