The greater availability of sub-4% mortgage rates due to lower inflation and base rate cuts will lead to a house price increase of 2.5% at the end of next year, it has been predicted.
The Hamptons Housing Market Forecasts report suggested that inflation would fall faster than expected in 2026, making way for two or three base rate cuts. It predicted that the base rate would settle at around 3.25% by the end of the year, and average mortgage rates at 4%.
This would improve the availability of mortgage rates below 4% and therefore support price growth and activity.
Hamptons said affordability was “improving on paper” as earnings growth outpaced inflation, but some households were still adjusting to higher costs. It said there were around 600,000 borrowers on five-year fixed rate mortgages below 3% who would be coming off these rates in 2026 and 2027.
With this in mind, house prices could rise by 2.5% in Q4, particularly in the Midlands and the North, where there are fewer affordability pressures.
There would be around 1.15 million housing transactions, mostly from people moving for necessity, and this will remain below historical levels.
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The Midlands and North to enjoy most house price growth
Hamptons said next year could be a “turning point” for regional house price growth as the East Midlands could overtake London. It noted that the capital had been a “safe bet” for long-term price growth, as since the end of 2010, when values crashed, prices in London had risen by 84%, outpacing the average of 74% across Britain.
Hamptons said that by 2028, house prices in Britain would have risen by 84% since 2010, and the East Midlands would outperform the nation with a growth of 94%. This will be followed by the West Midlands at 90% and the North West at 88%.
London will have the fourth-highest cumulative growth, but will be the only region where average prices are below the 2022 peak.
Weakened London and prime market
There will be a muted recovery in the London and prime markets, with recent tax changes resulting in flat growth across the capital. This will be due to small price falls in the £1.9m-plus market, offset by growth in the mainstream market, which will benefit from improved affordability.
Hamptons said a lack of price growth for higher-value homes was a value, and more households were selling for less at a loss. So far this year, 14% of London sellers have sold for less than they paid, up from 6% in 2016.
It said the London market was being driven by first-time buyers, who accounted for half of the homes sold so far this year.
It said recent tax announcements created a “challenging” backdrop for high-value markets, and prime country markets would be especially impacted by the council tax surcharge.
Hamptons predicted this would lead to a 5% price correction with properties above £2m but said this would be a “one-off adjustment”.
Market activity to slow before next general election
Hamptons said the market had become more sentiment-driven and sensitive to political events, and the potential uncertainty before the general election in 2029 could cause a pause in transactions, especially in prime markets.
It added that people were moving less, and although there were 10% more owner-occupied households in England compared to 2008, transactions were around 19% lower than the average in the three years before the global financial crisis.
Hamptons said next year would be the end of the rate-cutting cycle, and the future years also looked uncertain. It predicted inflation would remain above target and mortgage rates could rise in 2027 as the markets priced in future rate increases.
As a result, house price growth will slow to around 2% in Q4 2027, then 1.5% the year after.
Political uncertainty will also influence sentiment, especially in 2028, before the planned general election.
House prices in London will rise by 1% in 2027, then stall in 2028 due to tax policy.
Over the four-year period, house prices will rise the most in the North East by 16.3%, followed by Scotland at 13.6% and Yorkshire and the Humber at 12.5%. Hamptons said these regions had seen some of the weakest growth since 2010, so this would be a catching-up phase.
Aneisha Beveridge, head of research at Hamptons, said: “The housing market has always mirrored the mood of the nation. While the headlines have been dominated by uncertainty, underneath it all, we’ve seen signs of resilience. Inflation is easing, mortgage rates are falling, and affordability is improving, which should support modest price growth next year.
“But it’s hard to ignore the growing drag of taxation and politics. London, which historically leads recoveries, is being held back by higher stamp duty and broader tax anxieties, locking some owners into their homes and others out of buying them. The next phase of the cycle will be shaped less by discretionary moves and more by pragmatism – with policy playing an increasingly central role in determining who moves, when, and where. At the same time, the balance of power is shifting: the Midlands is forecast to have seen more price growth than London since prices bottomed out after the 2008 financial crash.”
