UK house prices are expected to rise by up to 4% next year, but first-time buyers and home movers may find it slightly easier to get onto the property ladder as affordability conditions gradually improve, according to new forecasts from Nationwide.
The UK’s largest building society said house prices are likely to increase by between 2% and 4% in 2026, supported by rising wages, easing mortgage rates and regulatory changes aimed at expanding access to home loans.
Affordability set to improve
Robert Gardner, Nationwide’s chief economist, said housing market activity is expected to strengthen modestly as household finances improve.
He said income growth is continuing to outpace house price growth, while interest rates are likely to edge lower, easing pressure on borrowers after two years of high mortgage costs.
Nationwide data shows the average UK house price stood at £272,998 in November. A 4% rise would push the average price to around £283,918 next year.
Interest rate cuts in focus
The outlook for the housing market is closely tied to monetary policy, with the Bank of England widely expected to cut interest rates by 0.25 percentage points to 3.75% this week.
Falling interest rates have already helped support the property market during 2025, Nationwide said, although annual house price growth slowed from 4.7% at the end of 2024 to 2.1% by mid-2025, before easing further to 1.8% in November.
Economists expect further gradual rate cuts in 2026 if inflation continues to ease, which could provide additional relief to mortgage holders and buyers.
Mortgage rates continue to fall
Mortgage pricing across the UK market has continued to trend downwards in recent months.
According to Moneyfacts, the average two-year fixed mortgage rate stood at 4.84% on Monday, while the average five-year fixed rate was 4.91%, both lower than a year ago.
Rightmove forecasts also point to house prices rising by around 2% in 2026. Matt Smith, a mortgage expert at the property portal, said many buyers are likely to begin the year facing lower mortgage rates than in 2025.
He added that buyers in areas where prices have softened, combined with recent pay rises, are likely to see further improvements in affordability.
Lending rules loosened by regulators
Recent regulatory changes are also reshaping borrowing capacity across the housing market.
Mortgage lenders traditionally cap borrowing at around 4.5 times income and apply stress tests to check whether borrowers could still afford repayments if interest rates rise.
Earlier this year, the Financial Conduct Authority said some lenders’ stress testing practices may have been overly restrictive, limiting access to otherwise affordable mortgages.
Since then, many lenders have reduced the interest rates used in stress tests, allowing buyers to borrow more without breaching affordability rules.
FCA targets first-time buyers and self-employed
On Monday, the FCA announced plans to consult on further reforms to the mortgage market aimed at helping first-time buyers, the self-employed and people with variable incomes.
The regulator said it wants to simplify mortgage rules and encourage more flexible products that reflect different working patterns and income levels across a person’s life.
The FCA also said it plans to improve the quality of financial advice, particularly for later-life planning, while encouraging the use of artificial intelligence to help mortgage brokers deliver faster and more tailored advice.
First-time buyer borrowing hits record
Rising wages and looser affordability tests have already pushed borrowing levels higher.
According to Savills, the average first-time buyer borrowed £210,800 in the year to September, the highest figure on record.
This trend reflects both higher house prices and lenders’ increased willingness to offer larger loans under revised affordability assessments.
North-south price gap narrows
Nationwide said regional price differences across England have continued to narrow, with the gap between northern and southern house prices falling to its lowest level since 2013.
The average home in northern England now costs almost 58% of the price of a home in the south, compared with a low point of around 48% in 2017.
The lender said weaker price growth in London has been a key factor behind the narrowing divide, as affordability pressures continue to weigh on the capital’s housing market.
