UK house prices bounce back in January as analysts predict 2%-4% rise in 2026

UK house prices bounced back in January after a surprise fall at the end of last year, and are predicted to improve during 2026, according to the UK’s top mortgage lender.The price of the average UK home rose by 0.3% in January, according to the lender Nationwide. That marked an improvement compared with December, when prices unexpectedly slipped by 0.4% in the weeks after Rachel Reeves’s budget in late November.Prices are now 1% higher than last year, Nationwide found, with the average price for a home now at £270,873.Economists predict that 2026 will be a year of growth in the UK’s property market, as mortgage rates fall and uncertainty around the budget begins to fade.Nationwide has forecast that prices will rise by 2%-4% this year, while the consultancy Capital Economics has predicted a 3.5% rise for the year.Robert Gardner, chief economist at Nationwide, said: “Housing market activity dipped at the end of 2025, most likely reflecting uncertainty around potential property tax changes before the budget.“Nevertheless, the number of mortgages approved for house purchase remained close to the levels prevailing before the pandemic.“Housing market activity is likely to recover in the coming quarters, especially if the improving affordability trend seen last year is maintained.”Reeves announced a new council tax surcharge on houses worth £2m or more but stopped short of more widespread levies on homes, which had been mooted.Gardner said a buyer with an average UK income buying their first home with a 20% deposit would have a monthly mortgage payment equivalent to 32% of their take-home pay. That is slightly above the long-term average of 30% but below the high of 38% in 2023.But even with signs of improving affordability, Tom Bill, of the estate agent Knight Frank, said the market could still face pressure this year.“Mortgage approvals in [December] were 9% below the five-year average, showing that demand is still fragile,” he said.“The chances of two [interest] rate cuts this year have faded in recent weeks for reasons that include stronger-than-expected UK economic data, which underlines how prices and transaction levels will remain under pressure.”The Bank of England cut interest rates from 4% to 3.75% in December, after official data showed that inflation fell in November to an annual rate of 3.2% from 3.6% in October.That remained well above the Bank’s 2% target, but suggested the worst of the inflation “hump” had passed.However, Megan Greene, a member of the Bank’s monetary policy committee (MPC) warned last month that it might not be able to lower interest rates as much as expected this year due to strong UK pay growth and expected rate cuts in the US.The MPC is expected to hold its key rate at 3.75% when it meets on Thursday.Alice Haine, of the broker Bestinvest, said households appear more likely to “exercise caution amid rising unemployment and persistent inflation and borrowing costs that, while easing, remain far above pre-pandemic lows”.“Around 1.8m fixed deals are set to expire in 2026, with a larger proportion of that tally attributed to borrowers rolling off low-rate, five-year deals into a much higher interest rate environment, putting pressure on disposable incomes,” she said.