Professor Emeritus Joe Nellis is economic adviser at MHA, the accountancy and advisory firm.

Key implications for the market:

• The housing sector has adjusted to elevated borrowing costs without tipping into decline.
• Limited supply of homes for sale, combined with still-solid employment conditions, is helping to anchor prices even as buyer caution remains widespread.
• Many households appear to be waiting for another cut in interest rates before making larger decisions.
• North-South split remains evident as London continues to underperform.

The Halifax House Price Index shows that UK property prices fell in the last months of the year, recording a 0.6% decline in December.

Annual growth in December continued to be down from the heights of earlier in the year and sits at 0.3%, extending the decline from November’s 0.7% rate. However, the softer annual figure is less a sign of weakening demand and more a consequence of the stronger price gains recorded in late 2024. In other words, the market is recalibrating rather than retreating.

A pronounced North–South split remains evident. Northern regions continue to post firmer year-on-year increases, supported by comparatively better affordability and steadier local demand. In contrast, many southern markets are experiencing flatter conditions as high mortgage costs bite more sharply into household budgets already stretched by the cost-of-living. This is particularly marked in London, driven by a fall in prices in its most expensive boroughs.

Outlook for 2026

The year ahead is likely to be defined by gradual, uneven progress. If inflation continues to ease the Bank of England are likely to enact a cut in interest rates in Spring. This would strengthen buyer confidence, particularly in regions where affordability remains favourable. While no sharp rebound is expected, the foundations for steady and more sustainable growth are emerging.