Savills predicts house prices to fall by 2% in 2026 after cuts – Housing Strategy
Average UK house prices are expected to fall by 2% in 2026 as rising mortgage costs dampen consumer demand, according to an updated housing market outlook from Savills.
The downgrade represents a major change from the company’s previous forecast of 2% growth next year and reflects growing pressure on household finances amid higher borrowing costs and persistent inflation.
Despite the weak short-term outlook, Savills remains optimistic about the long-term prospects for the housing market, predicting house price growth of 18.5% by 2030.
Although this is lower than its previous five-year forecast of 22.2%, the company believes that improving economic conditions and easing pressures on affordability will support a gradual recovery.
Savills predicts that house prices will fall by 2% in 2026 before returning to growth, rising by 2.5% in 2027, 5% in 2028, and 6% annually in both 2029 and 2030.
According to Savills, the escalating tensions in Iran and the resulting inflation have contributed to higher mortgage rates, fundamentally changing the outlook for the UK housing market.
The company says households are now facing rising loan defaults and reduced access to credit, weakening demand despite a strong start to the year.
Savills head of residential research Lucian Cook said: “Despite a strong start to the year in both price growth and activity, the rise in mortgage rates since late February has dampened the short-term outlook.
“At the same time, there is low demand compared to high levels of stock – partly from landlords who are dealing with greater regulation, which will put downward pressure on prices, particularly across smaller markets in London and the South East.”
However, Savills believes that several factors will help prevent a sharper drop. Housing affordability improved compared to 2022 following slower price growth, while tighter lending rules and the spread of subprime mortgages reduced the likelihood of widespread foreclosures.
As a result, the company expects only a modest correction in house prices, with the greatest pressure possible during the summer months when interest rates are expected to rise.
Savills warned that protracted conflict in the Middle East could fuel inflation and push interest rates higher than currently expected. In such a scenario, housing prices may experience a short-term sharp decline before rising sharply in subsequent years.
The property consultancy predicts that market conditions will begin to improve in 2027 as mortgage rates gradually increase and economic optimism strengthens.
By 2030, average UK house prices are expected to rise by around 18.5%, equivalent to around £67,000 in today’s values.
Savills projects inflation will return to the Bank of England’s 2% target from 2027 onwards, while the Bank’s base rate is expected to fall from 3.75% at the end of 2026 to 2.5% in 2030. Average mortgage rates are predicted to drop from 4.78% to 35% over the same period.
The affordability of the region is expected to play an important role in determining the performance of the housing market in the coming years.
Savills predicts that the North of England, Scotland and Wales will outperform the more expensive southern markets while mortgage rates remain high, benefiting from strong affordability levels.
The company also expects houses to perform better than apartments in the southern states, as buyers remain wary of rental arrangements and construction safety issues.
