House price growth to remain modest

• Connells Group forecast house prices across Great Britain to rise by 1.0% in 2026, 1.5% in 2027, 2.5% in 2028 and 2.0% in 2029, as the gradual easing of borrowing costs gives buyers more room in their budgets (table 1).
• Higher-than-expected mortgage rates delayed the recovery in home moves in 2026, with an estimated 100,000 fewer transactions than anticipated at the start of the year. The impact has been felt more in fewer sales than widespread price falls.
• Lower mortgage rates should help households resume postponed moves from 2027, but borrowing costs are expected to remain above the levels seen for much of the 2010s, limiting the pace of price growth.
• London house prices are forecast to rise by 2.0% in 2027, following a 1.0% fall in 2026 (table 1). Outer London should benefit from improving mortgage affordability, but higher taxation and weaker investor and international demand are expected to limit the capital’s recovery.
• Price growth is expected to peak at 2.5% across Great Britain and London in 2028, as falling inflation creates scope for borrowing costs to ease and support a broader improvement in demand (table 1).
• Scotland and the North East are forecast to remain among the strongest performers. More limited house price growth since 2008 has left these markets comparatively affordable, giving buyers more room to respond as mortgage rates fall (chart 2).
• House price growth is forecast to ease to 2.0% in 2029 as uncertainty ahead of the next general election tempers demand, particularly in London and Southern England where buyers are more exposed to potential property tax changes (table 1).
• Home moves are expected to begin recovering in 2027 as lower mortgage rates bring some postponed buyers back to the market, with completions reaching around 1.1 million in 2027, before rising further to just under 1.2 million in 2028 (chart 3). Activity is forecast to ease back to 1.1 million in 2029, set to be an election year.

Higher mortgage rates delayed the market in 2026

The housing market’s recovery in the number of people moving home has been slower than expected in 2026. Rather than easing, mortgage rates have risen, stretching buyers’ budgets and prompting some households to put their moving plans on hold.

The average mortgage rate paid by a homebuyer rose from 4.14% at the start of the year to 5.22% in October. Monthly repayments on a typical property bought with a 75% loan-to-value mortgage over 25 years reached £1,224 in October 2026, compared with £1,115 a year earlier and £874 in 2019.

These higher costs have reduced how much buyers can afford and delayed purchases. Connells Group estimates that transactions will be around 100,000 lower this year than expected at the start of 2026 because of higher-than-anticipated mortgage rates.

House prices across Great Britain are still rising, but more slowly as higher borrowing costs and taxes stretch buyers’ budgets. The latest ONS House Price Index, which Connells Group uses as the basis for its forecasts, shows the average house price rose by 0.8% year-on-year across Great Britain in August 2026, compared with 1.9% in August 2025.

So far, higher borrowing costs have prompted more people to put moves on hold rather than leading to widespread price falls. Wages are still growing, and there are few signs of large-scale job losses, helping households manage their finances.

Against this backdrop, Connells Group forecasts house prices across Great Britain to end 2026 1.0% higher than a year earlier, although prices will vary considerably across the country (table 1).

Housing has already become cheaper in real terms

House prices across Great Britain are set to rise more slowly than inflation for the fourth consecutive year in 2026. Relatively stable headline prices therefore mask a larger adjustment. Much of the market’s response to higher borrowing costs has come through house prices falling in real terms, rather than sharp outright falls.

Over the last five years, consumer prices (CPI) have risen by 21.8%, compared with house price growth of 10.9% across Great Britain and 0.9% in London. Although high mortgage repayments mean affordability remains stretched, homes cost less in inflation-adjusted terms, particularly in Southern England.

Some of the adjustment to higher borrowing costs has therefore already happened through inflation, reducing the pressure for outright price falls. Together with continued wage growth, this supports our forecast for modest price rises, assuming the economy avoids a recession and unemployment does not rise sharply.

2027: Lower borrowing costs support a gradual recovery

Connells Group expects borrowing costs to ease gradually during 2027. While financial markets are pricing in four or five Bank Rate rises over the next year, our forecast assumes no more than two increases over the next six months. A relatively weak economy and limited signs of inflationary pressures spreading should constrain further rises. If market expectations for Bank Rate ease, swap rates - and in turn fixed mortgage rates - should fall, even if Bank Rate initially rises.

Lower mortgage rates should give some households the room to revisit moves postponed during 2026, supporting forecast house price growth of 1.5% across Great Britain in Q4 2027 (table 1). However, borrowing costs are expected to remain above the levels seen for most of the 2010s, limiting both buyers’ budgets and price growth.

By mid-2027, most households will have adjusted to higher rates, as the last low-rate five-year fixed rate deals taken out before rates began to rise in 2022 come to an end. Higher repayments will still stretch budgets, but fewer households will face a jump in their monthly costs. This should ease a further drag on demand, giving house prices more room to rise.

Lower rates should make a particular difference in Southern markets where buyers need larger mortgages, helping demand and price growth pick up from a weaker starting point. However, Northern markets are generally expected to continue outperforming, with better affordability supporting price growth at a broadly similar pace to 2026.

London returns to growth, with Outer London leading the way

Average house prices across Greater London are forecast to rise by 2.0% year-on-year in Q4 2027, following a 1.0% fall in Q4 2026 (table 1). But the recovery will be uneven, with Outer London leading price growth while Inner London begins to stabilise.

We forecast Outer London prices to rise by 3.0% year-on-year in Q4 2027, the strongest growth across the country, following a 0.5% fall in Q4 2026. Demand here is more closely tied to domestic owner-occupiers, whose spending power should improve as mortgage rates ease.

Inner London is expected to see a more modest recovery, with prices rising by 0.5% year-on-year in Q4 2027 after a 4.5% fall in Q4 2026. Prices have fallen furthest here, with parts of prime central London around 30% below where they were 10 years ago in real terms (after inflation). This lower starting point should help attract buyers, although tax concerns, particularly among international investors, are likely to hold back growth.

Higher ownership costs could also temper London’s recovery in 2027. The prospect of higher council tax bills in some boroughs may offset part of the benefit of lower mortgage rates, while buyers of homes worth £2 million or more will also be factoring in the new ‘mansion tax’, which is due to take effect in April 2028. These additional costs may limit how much buyers are willing or able to pay, particularly amid uncertainty over a possible shift to an annual property or land tax in the future. Depending on how it is designed, such a change could leave around 75% of Londoners paying more each year than they currently pay in council tax.

Years of weaker price growth have also narrowed the gap between London and the rest of England. The average home in Greater London now costs 1.89 times the England average, down from a 2016 peak of 2.31 times and back to 2011 levels (chart 1). Inner London’s price premium has seen a sharper adjustment, returning to levels last seen in 2009.

London’s weaker price growth has made it better value relative to the rest of the country, but that alone is unlikely to trigger a repeat of its post-2008 recovery. Back then, ultra-low interest rates, a strengthening London economy, strong international demand and more favourable tax treatment helped the capital outperform. Today, higher property taxes, weaker investor demand and fewer international buyers are holding back growth, and these pressures are unlikely to ease significantly over the forecast period. Lower mortgage rates should support more moves and a recovery in prices, particularly in Outer London, but are unlikely to put the capital back at the forefront of regional price growth as we saw in the early 2010’s.

2028: Lower inflation supports broader house price growth

By 2028, inflation is expected to be close to the Bank of England’s target, creating more scope for interest rate cuts. Lower mortgage rates should improve buyers’ budgets and let more moves delayed by higher borrowing costs go ahead.

Connells Group forecasts house price growth of 2.5% across Great Britain in 2028, the strongest year of the forecast period (table 1). Even at this point, growth is expected to remain modest rather than mark the start of another boom.

More affordable markets should continue to lead. Buyers in these areas have more room within their budgets, allowing improvements in borrowing costs to translate into stronger demand.

The North East and Scotland are both forecast to see prices rise by 4.0% in 2028 (table 1). Since 2008, prices have increased by 41% and 54% respectively, compared with 98% in London. This more limited long-term growth has helped keep these markets comparatively affordable.

London and Southern England should also benefit from lower rates, but stretched affordability and higher property tax costs are expected to keep their recovery more subdued.

2029: Political uncertainty slows momentum

Lower borrowing costs should continue to support the market in 2029, but uncertainty ahead of the next general election is expected to temper demand. Some households may wait for greater clarity on tax and spending plans before committing to move.

This caution is likely to be more pronounced in London and Southern England, where higher property values tend to leave buyers more exposed to potential tax changes. The possibility of a hung parliament adds to the uncertainty. If government policy takes longer to become clear, households and businesses may delay moves, spending and investment.

House price growth across Great Britain is therefore forecast to ease to 2.0% in 2029 (table 1). Over the four years from Q4 2025 to Q4 2029, prices are forecast to rise by 7.2% across Great Britain, with the North East and Scotland leading growth at 13.1% and 12.5% respectively (chart 2).

Both have seen the weakest price growth over the cycle that followed the 2008 financial crisis, with prices up just 39% in the North East and 50% in Scotland since 2009. This has kept homes comparatively affordable, giving buyers more room to support further growth.

Even so, London is expected to retain its lead over the longer period. By the end of 2029, prices in the capital are forecast to be 103% above their 2009 level, compared with 88% across Great Britain.

Transaction outlook

The outlook for home moves follows a similar path - a gradual improvement as mortgage costs ease, rather than a sharp rebound in activity.

Completions across Great Britain are expected to edge higher in 2027, reaching around 1.1 million as lower mortgage rates encourage some households to revisit postponed moves (chart 3). Activity is forecast to pick up further in 2028, to just under 1.2 million, before easing back to around 1.1 million in 2029 as election uncertainty weighs on demand. The new First Homes scheme, launching in April 2027, should also provide a small boost to completions in 2027 and 2028.

Connells Group data shows that the number of homes going under offer has fallen less sharply than new buyer registrations this year. This suggests those with a stronger need to move are still buying, while more discretionary buyers have stepped back. Lower mortgage rates should encourage some of these buyers to return, supporting a gradual recovery in sales.

Activity is unlikely to return to the highs of 2021 or before the 2008 financial crisis. Borrowing costs remain higher than during the 2010s, while stamp duty adds a substantial upfront cost to moving. Together, these pressures are likely to continue to encourage households to move less often, keeping turnover subdued even as mortgage affordability improves.

Aneisha Beveridge, Research Director at Connells Group, said:

“The pick-up in home moves many expected this year hasn’t materialised. Instead, transactions have fallen as higher mortgage rates squeezed buyers’ budgets and dented confidence, leaving activity around 100,000 below our expectations at the start of 2026. But fewer moves have not translated into widespread price falls. Wage growth has helped support household affordability, while inflation has done much of the heavy lifting by reducing house prices in real terms.

“Looking ahead, lower mortgage rates should gradually give more people the confidence and financial room to move. But if rates remain around 5%, the risk of small house price falls in 2027, rather than growth, increases significantly.

“By mid-2027, the final wave of households on cheap five-year fixes taken out before rates began to rise will be refinancing. Higher repayments will still stretch budgets, but the refinancing shock that has weighed on confidence and activity should start to fade. We expect house price growth to build in 2027 and 2028, although mortgage repayments and moving costs will continue to hold some households back.

“London should return to growth, particularly in Outer London, but higher taxes and weaker investor and international demand will constrain its recovery. More affordable markets, including Scotland and the North East, are better placed to lead price growth. Government policy has supported first-time buyers and the lower end of the market, while stamp duty and other tax barriers will continue to weigh on the mainstream and prime markets.