The key factor driving this growth is a combination of improving affordability, thanks to income growth outpacing house price increases, and anticipated reductions in borrowing costs. Nationwide’s predictions suggest that the market will experience a more gradual recovery in the year ahead, with buyers facing less difficulty in securing their homes.
Nationwide’s chief economist, Robert Gardner, emphasised that while 2026 may not see dramatic shifts in the housing landscape, lower interest rates and a slowly improving economic environment are expected to create a more conducive atmosphere for property transactions. The forecasted price increase, although modest, is seen as a positive sign for those looking to step onto the housing ladder or sell their homes in the coming year.
Strengthened Market Activity Amid Lower Borrowing Costs
According to Robert Gardner, the UK housing market is likely to see a gradual pick-up in activity over the next 12 months, driven largely by an improvement in affordability. With income growth continuing to outpace house price increases, many buyers will find it slightly easier to enter the property market. Additionally, the anticipated decline in interest rates will further ease the financial burden for those seeking mortgages.
Gardner noted that this more favourable environment, although not expected to lead to rapid or extreme growth, will nonetheless help to stabilise the market. He highlighted that “housing market activity to strengthen a little further as affordability improves gradually.” This shift is particularly important in a post-pandemic economy where affordability had been a significant hurdle for many prospective homebuyers.
Despite predictions of up to 4% growth, the market will not be without its challenges. The chief economist warned that broader economic factors, such as inflation and wages, would still play a significant role in how the market behaves. As interest rates continue to fluctuate, the pressure on mortgage rates could still have a stabilising effect, albeit in a more modest fashion compared to the recent years of significant increases.
Tax Changes and Their Impact on Rental Properties
In addition to house price trends, Nationwide also addressed the ongoing changes in property taxes, particularly with regard to landlords. Chancellor Rachel Reeves’ planned increases in taxes on income from rental properties are expected to have a noteworthy impact on the buy-to-let sector. While this may not directly affect the broader housing market, it could drive up the cost of renting.
Gardner suggested that the new taxes on higher-value properties, which are set to be introduced by 2028, are unlikely to have a significant immediate impact on house prices. However, the increase in taxes on rental income may contribute to a tighter rental market. “The increase in taxes on income from properties may dampen buy-to-let activity further and hold down the supply of new rental properties,” Gardner explained. This reduced supply could place additional upward pressure on private rental growth, making it even harder for tenants to find affordable rental options.
The ripple effects of these tax changes may be felt more acutely in major urban centres like London, where the proportion of high-value properties is higher. With rental demand still strong and the supply of rental homes becoming more constrained, renters may face higher costs, especially as landlords adjust to the changing tax landscape.
While 2026 may not usher in dramatic shifts, the UK housing market is poised for a more stable, albeit modest, growth trajectory. With lower borrowing costs and an easing of affordability pressures, both buyers and sellers can expect a more balanced market in the coming year. However, renters may find the environment more challenging, with rising rental costs potentially further exacerbated by tax changes targeting landlords.
