The UK housing market closed 2025 on a softer footing, with prices slipping by 0.6 percent in December, extending November's modest decline. This monthly easing pushed the average house price down to £297,755, its lowest level since June, while annual growth slowed to just 0.3 percent. The data suggest a market pausing rather than stalling. Activity over the year remained broadly consistent with pre-pandemic norms, indicating underlying resilience despite late-year uncertainty.

Several countervailing forces are shaping the outlook for 2026. Falling mortgage rates following the recent base rate cut, alongside a wider range of high loan-to-value products, are expected to provide some support to demand. Importantly, affordability conditions improved, with the house price-to-income ratio reaching its lowest level in over a decade, offering cautious optimism for first-time buyers. However, easing wage growth and a flattening labour market remain constraints on purchasing power.

Regional patterns continue to diverge sharply. Northern Ireland stands out, with annual price growth of 7.5 per cent, while Scotland and Wales also recorded solid gains. In contrast, London saw prices fall by 1.3 per cent over 2025, underscoring a rebalancing away from the capital. Overall, modest price growth of 1 to 3 percent in 2026 appears plausible, rather than a strong rebound.

The Halifax House Price Index (HPI) is the UK's longest running monthly house price measure with data covering the whole country going back to January 1983. The index is based on the largest monthly sample of mortgage data, typically covering around 15,000 house purchases per month, and covers the whole calendar month. In March 2016 Markit announced that it would be acquiring the Halifax HPI from Lloyds Banking Group. Halifax continues to publish the index on behalf of Markit and both the name and the basic methodology remain unchanged. However, in May 2020, the annual growth measure was changed from the average of the last three months to just the latest month.

Home values affect much in the economy - especially the housing and consumer sectors. Periods of rising home values encourage new construction while periods of soft home prices can damp housing starts. Changes in home values play key roles in consumer spending and in consumer financial health. During the first half of this decade sharply rising home prices boosted how much home equity households held. In turn, this increased consumers' ability to spend, based on wealth effects and from being able to draw upon expanding home equity lines of credit.