The UK housing market has split in two

On paper, June was a good month for the UK housing market. Prices rose 0.2%, the first monthly increase since February, nudging the average property to £299,330 and annual growth to 0.6%.

But the headline figure from the Lloyds House Price Index shows that there are functionally two different housing markets moving in opposite directions.

In one of them, prices are climbing at a pace that would have looked healthy even before the rate shocks of recent years. Northern Ireland recorded annual growth of 7.4% in June, taking the average property there to £229,000 – more than twelve times the national growth rate.

Scotland followed at 3.9%, while in England the momentum sat firmly in the north: the North East rose 2.8% over the year to £181,133, and the North West gained 2.4% to £248,218.

In the other market, prices are falling and have been for some time. The South East led the declines, down 2% year-on-year to £381,654, while London slipped 1.1% to £534,831. The pattern is not new, but the gap between the two Britains is becoming the defining feature of the current market.

Affordability, stretched everywhere, has snapped in the places where prices ran furthest ahead of incomes. A buyer in the North East is contemplating an average property costing £181,133. By comparison, a buyer in London faces one at £534,831, nearly three times as much, against borrowing costs that, while easing, remain elevated.

The result is that the regions with the most headroom are absorbing demand that the south can no longer support.

Amanda Bryden, Head of Mortgages at Lloyds, explained that recent price trends continued to reflect wider economic uncertainty, including the impact of global events on inflation and interest rate expectations, though mortgage rates easing from their recent highs offered some encouragement to those considering a move.

Buyers vanish as prices rise

Bank of England data showed mortgage approvals for house purchase dropped 14.9% in May 2026 to 56,205 – also 10.8% below May 2025 levels.

The RICS Residential Market Survey for the same month found new buyer enquiries at a net balance of -34% and agreed sales at -37%. Seasonally adjusted residential transactions fell 2.0% to 98,450, according to HMRC.

This is a market where thin supply is propping up values against weak demand.

First-time buyer demand, notably, has held up: annual price growth for that segment rose to 0.8% in June from 0.3% in May, with the average first-time buyer property costing £240,433.

Ian Futcher, Financial Planner at Quilter, noted that mortgage rates had eased from the highs seen earlier in 2026 as swap rates stabilised and lenders competed for relatively limited business, but that borrowing costs remained elevated and affordability stretched for many households.

He explained that recent lending and approvals data showed buyers were being much more cautious, with many opting to hold off on big moves until they had more certainty around the path of interest rates.

The squeeze isn’t finished

The risk now is that household finances continue to deteriorate before the promised relief arrives. Futcher noted that while tensions in the Middle East had eased and the ceasefire had helped calm markets, many households were unlikely to feel the benefits immediately.

The energy price cap rose by 13% in July, and higher energy and food bills will tighten budgets that were already strained which, for prospective buyers, makes affordability harder still, and could in turn weigh on prices.

Futcher predicted that the Bank of England would likely be inclined to sit on the fence for now, but that lender competition could still produce opportunities for buyers, and that housing market activity could begin to pick up later in the year should mortgage rates gradually edge lower and confidence improve.

Bryden said Lloyds expected the housing market to continue moving at a measured pace, with lower borrowing costs providing some support for demand, though the outlook for prices would depend largely on inflation continuing to ease and household confidence gradually improving.

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