BLOGS

The UK housing market has spent much of the past two years adjusting to a new normal of structurally higher borrowing costs. What began as a sharp rate shock in 2022 evolved through a prolonged soft patch in 2024 and 2025, before a fresh headwind arrived in early 2026 in the form of a Middle East energy shock that temporarily pushed swap rates — and with them, mortgage pricing — back upward. Now, as summer 2026 takes hold, a handful of indicators are moving in a less negative direction for the first time in months. The question the market is asking is simple: have we passed the bottom?

The data suggest the answer is cautiously yes — for much of the UK, at least.

What the price indices are telling us

The headline numbers look modest by historic standards, but they represent something more meaningful in context: stability where there had been retreat.

Nationwide's June 2026 House Price Index puts the average UK home at £277,484, with annual growth of 2.2% — the strongest year-on-year reading since late 2024, achieved despite broadly flat monthly movement. The Lloyds House Price Index — the renamed successor to the long-running Halifax series — reported an average price of £298,812 in June, up 0.6% year-on-year, following successive months of marginal monthly movements in both directions. Neither index points to runaway growth, but both confirm that the outright falls feared by some analysts have not materialised at a national level.

The official UK House Price Index, produced jointly by HM Land Registry, the ONS, and Registers of Scotland and Land and Property Services Northern Ireland, tells a more nuanced story. Figures to March 2026 showed flat year-on-year growth at the national level, with a slight monthly dip of 0.4%. Headline figures for April 2026 — showing 3.8% annual growth — should be read with care: that spike reflects the sharp base effect created by the stamp duty threshold changes of April 2025, which temporarily dragged prices down a year ago.

What all three indices agree on is this: the market has moved from a period of outright contraction into one of flat-to-modest recovery. Amanda Bryden, Head of Mortgages at Lloyds, described 2025 as "one of the most settled years for UK house prices in the last decade" — a striking characterisation that would have seemed implausible two years ago, but which captures the market's unexpected resilience in the face of sustained affordability pressure.

Affordability: quietly improving

One of the most significant but least-discussed developments of this cycle is the quiet improvement in affordability. Nationwide noted earlier this year that the house price-to-income ratio had fallen to its most favourable level since late 2015. Halifax made a similar observation, stating that "mortgage costs as a share of income are at their lowest level in around three years."

This matters because it changes the relationship between headline price levels and buyer capacity. Wage growth has consistently outpaced house price inflation for the past 18 months, gradually rebuilding the purchasing power that was eroded when rates spiked. First-time buyer activity has responded: Nationwide reported that the FTB share of house purchase activity in 2025 was above its long-run average, supported by both the improved affordability picture and wider availability of high loan-to-value mortgage products.

REalyse transaction data reflects this improving dynamic in key postcodes across northern England, the Midlands, and the devolved nations — areas where price growth has remained positive and days-on-market metrics have held broadly stable, unlike in the softer markets of London and the South East where discount-to-asking-price spreads have widened.

The mortgage rate complication

The recovery narrative would be cleaner if not for the events of spring 2026. The escalation of the Middle East conflict in late February sent oil prices sharply higher, pushed UK inflation expectations upward, and caused swap rates to spike — the wholesale funding mechanism that determines fixed mortgage pricing.

By mid-May 2026, the average two-year fixed rate had climbed to approximately 5.78–5.81% according to Moneyfacts data, and the average five-year fix to around 5.68–5.70% — both substantially above the near-4% pricing briefly available in early February. The Bank of England held its base rate at 3.75% at both the April and June Monetary Policy Committee meetings, citing elevated inflation running above its 2% target. One MPC member voted to raise rates at the April meeting.

The good news is that this appears to have been a temporary shock rather than a structural shift. By June and into early July 2026, several major lenders — including NatWest, Barclays, and Santander — had trimmed fixed-rate pricing for consecutive weeks as swap rates began to ease. The best available five-year fixed rate in the market stood at around 4.33% as of mid-July. Market pricing implies the base rate will hold at 3.75% for the remainder of 2026, with a modest cut of 0.25 percentage points expected in the first half of 2027.

For buyers and investors, the practical implication is a market in which mortgage costs remain significantly above the sub-2% lows of 2020–2021, but where the trajectory, despite setbacks, continues to point downward. That gradual direction of travel is enough to sustain committed buyers — particularly those with larger deposits — even if it leaves more marginal borrowers on the sidelines.

RICS: the least-negative reading since February

Perhaps the most encouraging data point in recent weeks comes not from a price index but from surveyors on the ground. The RICS UK Residential Market Survey for June 2026 showed new buyer enquiries posting a net balance of -29% — still firmly negative, but the least negative reading since February and an improvement on the -34% recorded in each of April and May.

Crucially, this was the second consecutive month of improvement, a pattern that carries more weight than a single month's tick upward. Newly agreed sales stood at -32%, also less negative than the prior month. Tarrant Parsons, RICS Head of Market Research and Analysis, offered qualified encouragement: "June's survey results offer some cautious encouragement that the worst of the slowdown in market activity may be beginning to pass, with several key indicators moving in a less negative direction for a second consecutive month."

That caution is warranted. The RICS survey had briefly flashed positive for buyer enquiries in June 2025, before the market reversed course through the latter half of that year. The recovery in early 2026 — buyer enquiries at -15% in January — was then disrupted by the Middle East shock, which drove the reading to -39% in March, the weakest since August 2023. The current improvement therefore needs to be seen in the context of a market that has already experienced one false dawn this cycle.

Tenant demand in the lettings market, meanwhile, moved to a net balance of +18% in June — the strongest reading since May 2025 — against landlord instructions remaining constrained at -18%. RICS members expect rents to rise by approximately 2.5% over the next twelve months, underlining the persistent supply-demand imbalance in the rental sector that continues to support gross yields for buy-to-let investors.

The divergence that national headlines miss

The national average conceals a market that is performing very differently depending on where you look. The regional picture has rarely been more polarised.

Northern Ireland remains the standout performer across the entire UK, with annual price growth running between 7.5% and 9.5% depending on the index and period measured. Average prices in the province have risen to around £196,000–£214,000 — still significantly below the UK national average, which is part of what sustains demand. Low unemployment, healthy household balance sheets, and a relative affordability advantage versus English and Welsh markets have combined to create a market that appears to be catching up on years of underperformance following the financial crisis.

Scotland has also outperformed the UK average, with annual growth of 2.3%–4% depending on the source, and average prices around £187,000–£221,000. Wales has posted steady if unspectacular growth of 2.5%–3%. In England, Yorkshire and the Humber led with annual growth of approximately 3.9%, while the North West, North East, and East Midlands have all outperformed the national average. London, by contrast, has been the weakest-performing English region by some margin — recording annual price declines of between 1.3% and 3.3% — as affordability constraints weigh most heavily where prices are already highest. The South East and South West have also softened.

REalyse data shows this divergence playing out at postcode level too. In districts where sold £/sqft remains well below comparable regional averages and days-on-market are shortening, buyer confidence is measurably firmer — often in markets where gross yields of 5–7% are achievable, making purchase economics work even at current mortgage rates. In contrast, districts where prices remain elevated relative to both rents and local incomes are still seeing stretched vendor timelines and widening bid-ask spreads.

Has the UK housing market passed the bottom of the cycle?

Asking whether the market has "passed the bottom" depends on which market you mean.

For Northern Ireland, Scotland, and large parts of northern England, the answer appears to be yes — prices never fell sharply to begin with, and the market has been in a quiet but sustained upswing for much of the past 18 months. For Wales, the picture is similar: modest but positive growth, supported by relative affordability.

For London and the South East, the picture is less clear. Price declines have been real and ongoing, and the affordability challenge at the top of the market remains acute. Recovery here is likely to lag the rest of the UK, as it typically does in downturns — the capital tends to correct later but more deeply, then recover later but more strongly.

At a national level, the weight of evidence suggests the market has found a floor rather than a springboard. Price growth is running at between 0.6% and 2.2% annually, buyer enquiries are becoming less negative, affordability is the best it has been in a decade, and lender competition is beginning to rebuild. But the Middle East energy shock has demonstrated that this recovery is not yet resilient to external shocks — the market remains sensitive to anything that moves swap rates materially upward.

Nationwide forecasts annual price growth of 2%–4% for 2026 as a whole. Halifax/Lloyds sits in the 1%–3% range. Both outcomes are consistent with a market at or just past a cyclical low, grinding upward rather than surging.

What to watch in the second half of 2026

Several catalysts could accelerate or delay the recovery from here. A confirmed easing of Middle East tensions that allows energy prices and inflation expectations to fall would likely push mortgage rates materially lower and unlock a significant cohort of buyers who have been waiting on the sidelines. The Bank of England's July 30 MPC meeting is the next key moment — a hold was widely anticipated, but any shift in tone toward imminent cuts could move markets.

On the supply side, REalyse planning application data continues to show a relatively thin residential pipeline in many constrained markets — particularly in areas where land availability and planning timelines limit new-build output. In those locations, the absence of new stock is a structural support for prices even during periods of subdued demand.

Transaction volumes remain the most telling indicator to monitor. March 2026 HMRC data showed approximately 104,000 seasonally adjusted residential transactions — down sharply year-on-year, but principally because March 2025 was an artificially elevated month driven by stamp duty deadline activity. A more meaningful comparison is with pre-pandemic run rates of around 100,000 per month. The market is, in that context, performing at roughly normal activity levels — suggesting the system has not seized, even if enthusiasm has not returned.

Outlook

The UK housing market in mid-2026 is a market recovering its footing rather than regaining its stride. The evidence from Nationwide, Lloyds, RICS, and Land Registry points consistently toward stabilisation — flat-to-modest price growth, slowly improving buyer sentiment, and an affordability backdrop that is the most supportive it has been since the rate cycle began.

The risks are real and should not be dismissed. Mortgage rates remain meaningfully above levels that would unlock broad buyer participation, inflation has proven sticky, and geopolitical uncertainty has already delivered one setback this year. A further deterioration in the Middle East, a hawkish turn from the Bank of England, or a weakening in the labour market could each tip the balance back toward contraction.

But for investors and property professionals assessing long-term positioning, the balance of evidence now points to a market past its nadir in most regions. The floor is not glamorous — it rarely is — but it is increasingly visible. For those who waited for clarity before committing, the window may be narrowing.