Savills downgrades UK house price forecast for 2026

Savills has adjusted its UK house price predictions, now expecting a 2% decline in 2026 due to the impact of higher mortgage rates on buyer demand.

Global real estate investment - Savills

This is a revision from their earlier forecast of a 2% increase. The firm attributes this change to recent global conflicts and the resulting inflation, which has led to increased mortgage costs and tighter lending.

Despite the short-term dip, Savills remains optimistic about the medium-term, forecasting an 18.5% growth in average house prices by 2030 (a slight downgrade from their previous 22.2% projection). They anticipate that economic improvements and better affordability will drive this recovery, with prices starting to rebound in 2027.

The North of England, Scotland, and Wales are expected to perform better during this period of higher mortgage rates due to their stronger affordability. Additionally, houses are predicted to outperform flats, as buyers remain cautious about leasehold and building safety issues. The main risk to this outlook is a prolonged conflict in the Middle East, which could lead to further inflation and interest rate hikes, causing a more significant but temporary downward pressure on house prices followed by a stronger recovery.

Lucian Cook, head of residential research at Savills, said: “Despite a robust start to the year for both price growth and activity, the rise in mortgage rates since late February has downgraded the short-term outlook. Higher borrowing costs and weaker sentiment will weigh on demand through the remainder of 2026. At the same time, lower demand is being set against elevated levels of stock – partially from landlords selling up in the face of greater regulation, which will place downward pressure on prices, particularly across submarkets in London and the South East.”

“However, several factors will cushion the impact of these headwinds. Affordability is less stretched now, compared with 2022, following a slower recovery in prices. While stricter mortgage regulations and the widespread use of fixed-rate mortgages continue to keep the risk of forced sales low. Overall, this points to a modest adjustment in nominal house prices, with the greatest pressure likely to come over the summer as interest rates peak.”

Dan Hill, research analyst at Savills, added: “Regional performance continues to be shaped by affordability. More affordable markets tend to be more resilient when borrowing costs rise, and we expect that to underpin outperformance across parts of the North, Scotland and Wales while mortgage rates remain elevated.”