Twelve months ago financial markets were feeling a sense of nervous uncertainty ahead of Donald Trump’s presidency.
Their concerns centred on the possible inflationary impact of US tariffs, which meant stock markets fell before his inauguration on 20 January and traders bet that UK Bank Rate would exceed 4.25% by the end of 2026.
Given the situation in Venezuela, it’s fair to say the first week of 2026 has brought more clarity around Trump’s plans.
But while the South American operation has raised questions, it has done little to unsettle markets so far.
MARKET MILESTONE
Equities have climbed on both sides of the Atlantic and the FTSE100 broke through 10,000 for the first time this month.
That particular milestone had more to do with the outlook for commodity prices and defence spending than optimism surrounding the UK economy.
Meanwhile, as inflation expectations have receded, financial markets currently price Bank Rate closer to 3.25% by this December, which is a notably more optimistic view than a year ago.
“The situation in Venezuela is clearly volatile but given that it doesn’t appear to be about regime change, it is more of a news story than a financial markets story,” said Michael Brown, an analyst at financial broker Pepperstone.
“There has also been a muted reaction on markets to what has been happening in Iran.”
TENTATIVE RESILIENCE
Property markets have also demonstrated tentative resilience in recent weeks.
While the number of UK exchanges last year was 5% lower than in 2024, activity picked up in the final quarter. The number of sales in the last three months of 2025 was identical to the same period in 2024, Knight Frank data shows.
One reason for the late bounce is that buyers and sellers acted before the November Budget due to the speculation over property taxes. Others acted after the event, relieved that mansion tax rates were not set higher.
The Q4 surge was more noticeable in prime markets, where the speculation had been most intense. The number of exchanges above £5 million in London during the last three months of the year was 29% higher than in 2024.
“With the Budget and Christmas behind us, there is better visibility for buyers and sellers,” said Stuart Bailey, head of prime central London sales at Knight Frank.
“There’s been no sudden turn in the market, but an absence of bad news means things feel like they did in spring 2025.”
But will the momentum continue?
“Buyers thinking medium to long term can certainly see this is a good time to act. How strong the market becomes also depends on sellers, some of whom perceive the market to be worse than it actually is and are holding back,” said Bailey.
TWO-SPEED MARKET
Last year’s prolonged bout of pre-Budget speculation, which began in the summer, meant prices continued to slide.
Average prices in prime central London fell 5% in the 12 months to December, which was the biggest annual fall recorded since the market was closed during the pandemic in July 2020.
It means prices are down by 22% since the last peak in mid-2015, which is driving demand from buyers sensing value, as noted by Stuart.
“Prices have been steadier in the more needs-driven and domestic market of prime outer London.”
Prices have been steadier in the more needs-driven and domestic market of prime outer London.
After being flat in the final quarter of 2025, prices ended the year 0.2% down, demonstrating how the Budget created a two-speed market in the capital.
How markets perform this year will again depend on what the Chancellor does next. Rachel Reeves is clearly keen for the spring statement on 3 March to be a non-event, which is good news for anyone concerned about another bout of tax speculation.
Her financial headroom is still tight by historical standards so similar speculation later in the year feels plausible.
However, she and Kier Starmer may have to see off internal threats to their position before then, as discussed on the latest episode of Housing Unpacked with former Treasury special advisor James Nation.
It means, for now, the key question for the property market is not the content of the autumn Budget, but who will be delivering it.
LETTINGS MOMENTUM BUILDS BUT YEAR HINGES ON POLICY SUCCESS
A sense of certainty following November’s Budget drove demand in the prime London lettings market at the end of last year.
It followed months of speculation surrounding which taxes may rise as Chancellor Rachel Reeves attempted to rebuild her financial headroom.
There was a similar late bounce in the sales market in 2025.
The number of new prospective tenants registering in London in December was 12% higher than the same month in 2024, Knight Frank data shows. The number of viewings increased by 5%.
“The early days of January are busier than we would normally expect, which follows a rally towards the end of December,” said Jon Reynolds, Head of Lettings in the north, city and east London region at Knight Frank.
“There appears to be some positivity in the market and areas where stock levels are healthy have seen robust enquiry levels. The feeling at the moment is one of cautious optimism.”
That said, the number of tenancies started last year was down versus 2024. The figure was 6% lower in Q4 and 1% down over the year.
SUPPLY STILL TIGHT
The primary reason for the drop was a lack of supply. A growing number of landlords have sold or attempted to sell their property due to tax increases in recent years and the prospect of future legislative changes.
For example, the Renters’ Rights Act, which comes into effect in May, will create uncertainty around setting rents, repossessions and the sale process for landlords.
The number of new rental listings in London last year was 5% lower than in 2024, Rightmove data shows. The 2025 figure was 10% lower than the number recorded in 2023.
“The growing financial burden means more landlords are exploring the option of setting up a company.”
The growing financial burden means more landlords are exploring the option of setting up a company, although it is not a straightforward process, as discussed on a recent episode of Housing Unpacked with Nimesh Shah, the CEO of tax advisory firm Blick Rothenberg.
The one section of the market where the number of tenancies rose last year was the super-prime (£5,000+ per week) price bracket.
It was largely due to uncertainty in prime sales markets following changes to tax rules for non doms and wider speculation around wealth taxes ahead of November’s Budget. It meant more wealthy individuals hedged their bets by renting than buying.
The number of super-prime tenancies started in 2025 was 17% higher than the previous year, Knight Frank data shows.
RENTS STILL RISING
However, for those landlords staying in the sector, rental yields are increasing as a result of rising rents and price declines, as we explored here.
Indeed, average rental value growth in prime London markets has increased over the last year.
Rents in prime central London rose 1.7% in the year to December, which compares to a rise of 0.7% recorded in 2024. Meanwhile, an increase of 2.5% in prime outer London outstripped the rise of 1.3% seen in 2024.
What happens to supply, the number of tenancies started and rental value growth in 2026 will therefore continue to depend on the success of government initiatives.
