2026 is set to be another unspectacular year for the housing market, as volatility from April’s Stamp Duty change has now passed, and housing market performance will likely be based on more fundamental factors going forward.
Notably, the big improvements in affordability have passed as a deteriorating jobs market will likely lead to slowing wage growth, says professional services firm EY. It adds that falls in mortgage rates are unlikely, with the Bank of England indicating it will be cautious about any further interest rate cuts.
December’s house price fall marked a disappointing end to an understated year of housing market performance. Halifax house price estimates fell by 0.6% in December, having ticked down by 0.1% in November.
With a soft Q4 rounding out last year, house prices ended the year 0.3% higher than in December 2024. Looking back on 2025, it was a year of two halves.
The first half was characterised by the volatility around April’s change in Stamp Duty thresholds, but by the second half of the year, this effect had faded away, and activity had returned to pre-pandemic levels.
“This year, the housing market’s performance will be the result of fundamental factors. Property taxes announced at the Autumn Budget are not expected to have a material or immediate impact on the housing market,” said Matt Swannell, Chief Economic Advisor to the EY ITEM Club.
He added that the high value council tax surcharge will only impact less than 1% of properties in England and, in any case, it will only come into effect in April 2028.
“It’s likely that 2026 will be another modest year for the housing market. Having improved over the last couple of years, we don’t expect to see big gains in affordability. The loosening of the labour market will lead to slower pay growth, so housing valuations will still look stretched this year, while there doesn’t appear to be much scope for big falls in mortgage rates.
“Although the Bank of England cut interest rates at its December meeting, the Monetary Policy Committee (MPC) was clear it would be cautious in reducing Bank Rate this year. It looks very likely interest rates will be cut less this year than they were last year.”
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