UK house prices ‘could rise by up to 4% in 2026 as interest rates fall’

House prices in the UK could rise by as much as 4% next year but getting on the property ladder may become slightly less difficult, according to forecasts from the lender Nationwide.Robert Gardner, the chief economist at the building society, said prices were likely to increase by 2-4%. “We expect housing market activity to strengthen a little further, as affordability improves gradually via income growth outpacing house price growth and a further modest decline in interest rates,” he said.Separately, the City watchdog announced plans on Monday to help first-time buyers and self-employed people get on the property ladder.Average UK house prices were £272,998 in November, according to Nationwide. A 4% rise next year would take the average to £283,918.The Bank of England is widely expected to cut interest rates by a quarter of a percentage point to 3.75% on Thursday.Falling interest rates have helped support the property market this year, Nationwide said, although annual house price growth slowed steadily from 4.7% at the end of 2024 to 2.1% by mid-2025, before easing to 1.8% in November.Forecasts from Rightmove also suggest house prices will rise by about 2% in 2026. The lender Halifax has predicted prices will rise between 1% and 3% next year, as lower interest rates and easing inflation are expected to outweigh the impact of slowing wage growth and a possible rise in unemployment.Matt Smith, a mortgage expert at the property portal, said home movers were likely to begin the year facing cheaper average mortgage rates than in 2025.“Those who are seeing slightly lower house prices in their area compared to last year, and may have also had an end-of-year pay rise, will see their affordability improved further,” he said.“Many home movers will also see that the amount that they can borrow has increased, as lender have been rolling out the loan-to-income and stress-rate changes that were permitted by the regulator earlier this year.”Mortgage lenders typically do not lend more than 4.5 times a borrower’s income and usually assess whether applicants can afford repayments if interest rates were to rise, through checks known as “stress tests”.However, this year the City watchdog, the Financial Conduct Authority (FCA), said the way some lenders were carrying out these tests “may be unduly restricting access to otherwise affordable mortgages”.Since then, many lenders have reduced the interest rate at which they stress test borrowers.Separately, on Monday the FCA said it would consult on changes to the mortgage market, including simplifying mortgage rules to allow more flexible products that better reflect different working patterns and income levels at various stages of life.It also aims to improve advice to help people “confidently plan for later life”, while encouraging the use of AI to help brokers provide “better and faster advice”.Mortgage rates are broadly falling across the market. The average two-year fixed rate was 4.84%, while the average five-year fix was 4.91% on Monday, according to the analyst Moneyfacts.Rising wages and looser affordability tests have also enabled first-time buyers to take out larger mortgages than ever before. The average first-time buyer borrowed £210,800 in the year to September, a record high, according to the property agent Savills.North-south house price gap chartNationwide said the price gap between homes in the north and south of England narrowed to its lowest since 2013, largely because of weak growth in London.The average price of a home in northern England is almost 58% of that in the south, comfortably above the low of about 48% recorded in 2017, the lender said.