The Halifax data for January confirms that the UK housing market has entered a more measured phase, following the volatility of recent years.
Slower price rises in late 2025 reflected seasonal factors, with a rise of 0.7% in January suggesting that the market is no longer overheating, but neither is it retreating sharply. Instead, housing activity appears to be stabilising, with modest price changes reflecting a balance between easing financial conditions and persistent affordability constraints.
On a national basis, annual house price growth remains subdued, hovering in low single-digit territory. Monthly movements have been small, reinforcing the view that the market has found a temporary plateau. This reflects the combined impact of higher borrowing costs compared with pre-2022 norms, cautious buyer sentiment, and a gradual improvement in real household incomes. While mortgage rates have eased from their peak, they remain sufficiently high to restrain demand, particularly among first-time buyers without access to family support.
A defining feature of the current market is the widening gap between regions. London and much of the South East continue to underperform, with price growth constrained by stretched affordability and a larger exposure to higher-value transactions. In contrast, several parts of the Midlands, the North of England, Scotland and Northern Ireland are showing greater growth. Lower average prices, stronger rental demand and relative affordability are supporting firmer price growth in these areas, a trend that is likely to persist in the months ahead.
The housing market is set for gradual, rather than dramatic, change throughout 2026. With interest rates likely to fall — a cut is expected in the Spring — and wage growth continuing to outpace inflation, housing demand should improve slowly over the course of the year. Most indicators suggest that national house prices are likely to rise modestly, broadly in line with or slightly above inflation, rather than returning to the rapid growth seen earlier in the decade.
However, challenges remain. A large number of households will still face higher mortgage repayments as fixed-rate deals expire, limiting spending power and constraining demand. At the same time, structural supply shortages — particularly in high-demand urban areas — continue to place upward pressure on prices and rents, complicating efforts to improve affordability.
