In May, UK house prices experienced their first monthly dip of 2026, reflecting the impact of increased mortgage rates and a backdrop of economic uncertainty that has tempered activity in the housing market. The average home price fell by 0.6% from the previous month, settling at £278,024. This decline in May also saw annual house price growth slow to 1.7%, a noticeable drop from April’s 3% growth rate, signaling a cooling off in the sector.
The rise in borrowing costs has played a significant role in this slowdown, making property purchases more costly. Average fixed-rate mortgage offers are still running above 5.6%, and this has diminished affordability, thereby weakening buyer demand during what is usually a peak season for the property market. As a result, the market’s momentum has been adversely affected.
In response to these developments, Savills, a prominent real estate consultancy, has adjusted its forecast for the UK housing market. The company now anticipates a 2% decrease in average house prices for 2026, a revision from its earlier prediction of slight growth. Analysts attribute this cautious outlook to the persistent pressure from high financing costs and ongoing economic uncertainties, suggesting these factors will continue to influence the market in the near future.
Despite the current deceleration, experts note that mortgage rates remain below the highs observed in 2023. This presents a potential for recovery, provided financial markets stabilize and energy prices decline. Nevertheless, challenges relating to affordability and emerging signs of a more subdued labor market are flagged as significant risks that could further impact the housing sector.