UK Mortgage and Housing Market Update – January 2026
This update draws on the latest data from sources including the Bank of England,
Nationwide, Halifax, and industry reports to give you a clear picture of market
movements. Feel free to relay relevant insights to help others them navigate the
current landscape. As always, we’re happy to help answer questions or give advice
should it be required too.
Key Highlights
- The Bank of England maintained its base rate at 3.75%, with market expectations for potential further cuts later in 2026 amid falling inflation.
- House prices showed modest monthly gains across major indices, with annual growth picking up slightly but remaining subdued.
- Mortgage approvals fell to 61,013 in December (latest available data), reflecting seasonal slowdowns but still indicating underlying market resilience.
- Improving affordability and competitive lender offerings have bolstered activity for first-time buyers and re-mortgagors despite economic headwinds.
Interest Rate Developments
The Bank of England held its base rate at 3.75% in its February 5, 2026, decision, following a 5-4 vote, with four members pushing for a 0.25% cut. This comes after a reduction from 4.00% in December 2025, as policymakers weighed easing inflation against a weakening economy. Mortgage rates have continued to decline, with a two-year fixed rate (at 75% loan-to-value) around 4% by late January. Lenders have expanded products for first-time buyers, fostering a more accessible market environment.
House Price Trends
January data pointed to a steady start to the year in house prices. Nationwide’s
House Price Index reported a 0.3% month-on-month increase, with annual growth
accelerating to 1.0% (up from 0.6% in December), bringing the average UK home
price to £270,873. Halifax reported a +0.7% month-on-month rise, with annual growth
at 1.0%, pushing the average property value above £300,000 for the first time to
£300,077. This divergence underscores index methodologies, but overall, the market
demonstrates stability amid lower rates and fading budget uncertainties, supported
by gradual affordability improvements.
Forecasts for 2026 have been updated, with anticipated UK house price growth in the
1-4% range, driven by expected rate cuts and a stabilizing economy.
Mortgage Approvals and Lending Activity
Bank of England data for December 2025 showed net mortgage approvals for house
purchases dropping to 61,013 – a decrease of about 3,000 from November –
signaling a seasonal dip but levels still above mid-2025 lows. This figure remains
consistent with recovering demand trends.
Buy-to-let arrears stabilized in Q4 2025, with possessions low relative to history,
highlighting sector durability. Recent lender adjustments have enhanced borrowing
power by up to 15% for some, particularly first-time buyers, sparking renewed
engagement. However, commitments moderated slightly, indicating cautious
borrower sentiment.
Market Sentiment and Outlook
January’s market exhibited early signs of recovery, with price gains offsetting late- 2025 softness, though buyer inquiries tempered by rising unemployment. Experts anticipate gradual lending growth in 2026, as inflation nears the 2% target potentially enabling more rate reductions. While affordability pressures and fiscal tightening present hurdles, the outlook is optimistic, with increased activity expected as rates ease further.
