Confidence in the UK housing market is beginning to recover despite activity remaining subdued at the end of 2025 according to the latest RICS UK Residential Market Survey.
RICS says buyer demand and agreed sales stayed in negative territory in December, reflecting the softness seen through much of the year.
New buyer enquiries recorded a net balance of -24%, while agreed sales stood at -19%.
Both figures improved slightly month-on-month, pointing to a slowdown in the pace of decline.
SHIFT IN SEMTIMENT
Forward-looking indicators showed a clearer shift in sentiment. Sales expectations for the next three months rose to +22%, the strongest reading since October 2024.
Looking a year ahead, optimism increased sharply, with a net balance of +34% of respondents expecting sales volumes to rise.
Surveyors cited easing interest rate expectations and the fading of Budget-related uncertainty as key factors behind the improvement.
Supply conditions stabilised, with new vendor instructions flattening to a net balance of 0%, ending several months of contraction.
However, RICS noted that low appraisal activity suggests any significant increase in stock will take time to emerge.
FALLING HOUSE PRICES
House prices continued to fall at a national level, with a net balance of -14%, although the trend is moderating.
Regional differences remain marked, with London (-42%) and the South East (-32%) seeing the steepest declines, while Scotland and Northern Ireland continue to record price growth.
Looking ahead, price expectations have improved, with +35% of respondents now anticipating prices to rise over the next 12 months.
LETTINGS UNDER PRESSURE
Tenant demand weakened further in December (-27%), while new landlord instructions stayed deeply negative (-39%), reinforcing ongoing supply shortages.
Rents are expected to continue rising, with average growth of around 3% forecast over the next year.
Tarrant Parsons, RICS head of market research and analysis, says: “The UK residential market remains in a prolonged soft patch, with December’s survey recording a sixth consecutive month of negative momentum in buyer enquiries.”
But he adds: “That said, there are tentative signs of a shift in sentiment beneath the surface. Near-term sales expectations have strengthened, and the 12-month outlook has edged into more positive territory.
“The key test for 2026 will be whether borrowing costs ease on a sustained basis. If so, this could provide the catalyst needed to drive a recovery in buyer demand.”
ECONOMIC CLARITY
Tom Bill, Head of UK Residential Research at Knight Frank, says: “The renewed confidence seen in recent weeks underlines the rule that the less a government intervenes in the housing market, the closer it operates to full capacity.
“The combination of clarity around taxation and the prospect of further rate cuts means demand in the first weeks of January has been stronger than normal.
“That doesn’t mean the market is now on an upwards trajectory and domestic political risks could still undermine sentiment over the next six months.
“For now, the absence of bad news means that some of the demand that became pent up last year is being released and we expect UK prices to grow by 3% this year.”
UNINTENDED CONSEQUENCES
And he adds: “Tenant demand has been relatively strong in the lettings market following the Budget and the clarity it brought.
“However, supply is still under pressure as more landlords sell up due to the proliferation of red tape and taxes in recent years.
“The big test in 2026 will be the Renters’ Rights Act.”
“The big test in 2026 will be the Renters’ Rights Act, with some prospective landlords sitting on their hands to watch how it plays out and whether the court system becomes overwhelmed.
“As supply comes under pressure, it means upwards pressure on rents will persist, which is exactly the sort of unintended consequence that governments worry about when they design new legislation.”
TWO-TIER MARKET
Jeremy Leaf, north London estate agent and a former RICS Residential Chairman, says: “Falls in interest rates and inflation may have arrived too late last month to have much impact on activity.
“However, market activity has certainly perked up in our offices since confirmed in this historically-reliable lead indicator report.
“A two-tier market is developing with more interest in smaller two and three-bedroom houses where prices are hardening rather than larger, more expensive homes likely to be affected by the new Mansion Tax.
“Conversely, an over-supply and worries about outgoings for flats is reducing demand so values of many are also softening.
“Continuing uncertainties, particularly about the economy and closer-to-home unemployment prospects, are still influencing decision-making too.”
RENTERS’ RIGHTS ACT
And he adds: “The slowdown in lettings activity arrived a little earlier than usual in December. Some aspiring first-time buyers were clearly awaiting the outcome of the Budget before giving notice on lettings’ contracts and taking the plunge.
“The decision to take that step on the housing ladder has bolstered stock so partly compensated for landlords deciding to sell due to the imminent arrival of the Renters’ Rights Act.
“However, affordability concerns are keeping a lid on sharper increases in rents – at least for the time being.”
