House prices across London and the UK are expected to rise modestly in 2026 as the housing market begins to stabilise following a subdued second half of this year, according to new forecasts from estate agent Chestertons.
The firm predicts average property prices will increase by around 2% across the UK and Greater London next year, with Prime Central London (PCL) lagging slightly at 1% growth.
It says lower interest rates and greater clarity around taxation following the Autumn Budget should support activity, although gains are likely to be limited by weak economic growth, stretched affordability and cautious consumer sentiment.
Chestertons says London had been particularly affected by uncertainty in 2025, with speculation around possible tax changes in the run-up to the Budget prompting many buyers and sellers to delay decisions. That hesitancy weighed on transaction volumes and pricing, contributing to an estimated 1.8% fall in average house prices across the capital.
AFFORDABILITY CONSTRAINTS
While inflationary pressures have eased, affordability remains a major constraint, especially in London. UK inflation fell to 3.6% in October but remains well above the Bank of England’s 2% target.
Although regular pay has been rising faster than inflation since mid-2023, mortgage costs continue to absorb a large share of household income.
Chestertons estimates that the average monthly mortgage payment now accounts for 33.8% of income across the UK and 43.6% in Greater London, both above their 10-year averages. In Inner London, the ratio stands at 55.6%, reflecting the city’s reliance on international demand and global capital flows rather than domestic affordability alone.
Employment uncertainty has also weighed on confidence, particularly in London’s technology sector, where concerns over job security have encouraged households to adopt a more cautious approach to major financial decisions. Chestertons reports an 11.4% year-on-year fall in buyer numbers during 2025.
IMPROVED SUPPLY
On the supply side, the firm said there were tentative signs of improvement. Some buy-to-let landlords have begun selling rental properties in response to higher regulation and taxes, while slower demand and price reductions in certain segments have given buyers more negotiating power.
At the same time, housing starts in London have declined, although temporary measures introduced by central government and the Mayor of London are intended to stimulate new construction.
Looking ahead, Chestertons expects pent-up demand from buyers who postponed moves in late 2025 to return to the market in the early months of 2026, potentially lifting transaction levels and exerting mild upward pressure on prices.
However, it cautions that any sustained recovery will depend on improving consumer confidence and an end to the policy speculation that unsettled the market ahead of recent Budgets.
MODEST PCL PRICE GROWTH
In Prime Central London, Chestertons expects modest price growth as the market stabilises, supported by structural factors including limited supply, long-term demand from international buyers and London’s continued appeal as a global investment destination, particularly among buyers from the Middle East, the US and Hong Kong.
Rental growth is also expected to remain restrained. Chestertons forecasts rents will rise by around 2% across Greater London and the UK in 2026, with Prime Central London seeing slightly stronger growth of up to 3%.
Strong tenant demand continues to underpin the rental market, but affordability pressures have limited landlords’ ability to raise rents, with housing costs estimated to consume around 40% of household income.
The firm says this had contributed to a period of relative stability during 2025, despite widespread concern over the impact of regulatory changes.
RENTERS’ RIGHTS ACT
While some landlords had considered exiting the market following successive tax and legislative reforms, including the Renters’ Rights Act, slower sales conditions have prevented many from doing so, helping to maintain rental supply.
Chestertons says that the Autumn Budget had a limited direct impact on landlords, with rental tax changes and council tax surcharges unlikely to materially affect most portfolios.
From May 2026, the Renters’ Rights Act will restrict landlords from accepting offers above the advertised rent, a change that may lead to slightly higher asking rents but is expected to support greater transparency and stability.
Chestertons warns that if sales activity improves next year, more landlords may choose to sell, potentially tightening rental supply and placing renewed upward pressure on rents.
Overall, the firm expects both the sales and lettings markets to remain broadly balanced in 2026, with modest growth rather than a sharp rebound, as households and investors adjust to a slower-growth economic environment.
