House Prices Will Fall by Two per Cent This Year – the Most Since the Financial Crisis

Why It Matters

The forecast signals tighter credit conditions and weaker demand, pressuring homeowners and investors while reshaping the UK housing market outlook. A price decline can affect consumer wealth, construction activity, and financial‑sector exposure to mortgage defaults.

Key Takeaways

• Savills predicts 2% nominal house price drop in 2026.
• London prices expected to fall 4% amid supply glut.
• Two‑year mortgage rates rose to 5.8% after Iran war.
• Real‑term prices down nearly 6% as inflation stays 3.9%.
• Recovery forecast: 2.5% price rise in 2027.

Pulse Analysis

The UK housing market has entered a rare contraction phase, with Savills revising its 2026 outlook after the Iran conflict forced lenders to tighten credit. Mortgage providers, once offering two‑year fixed rates near 3.5%, now price products at an average of 5.8%, eroding affordability for prospective buyers. Higher borrowing costs, combined with lingering inflation at 3.9%, are pushing nominal house prices down 2% and real values nearly 6% nationwide. This shift mirrors the post‑Ukraine‑invasion slowdown of 2023, but the current dip is more pronounced due to the rapid re‑rating of mortgage products.

London’s market illustrates the broader trend, with Savills projecting a 4% price decline in the capital. A surge in former rental properties entering the market, spurred by recent regulatory changes and tax hikes, has amplified supply at a time when demand is softening. Landlords, facing reduced cash‑flow prospects, are off‑loading assets, further depressing prices in the city’s wealthiest districts. The regional disparity underscores how policy and macro‑economic shocks can quickly translate into localized price volatility, affecting both homeowners and institutional investors.

Looking ahead, Savills anticipates a modest recovery in 2027, forecasting a 2.5% price rise as mortgage rates stabilize and consumer sentiment improves. While the projected rebound is far from the pre‑crisis growth trajectory, it suggests that the market may avoid a prolonged slump akin to the 2008 crash, which saw a 10% price fall. Stakeholders should monitor central bank policy, geopolitical developments, and supply‑side dynamics, as these factors will dictate whether the housing sector can sustain a gradual upswing or face further corrections.