IT’S been a tough 2025 for the housing market – many budding buyers have put their hunts on hold this year due to stamp duty hikes and Budget uncertainty.
But will the property market start to defrost in the new year now that mortgage rates are predicted to keep falling in January … and what will happen to house prices? We picked top experts’ brains to see what’s in store.
What happened with the housing market and mortgage rates this year?
Households have been battling against high mortgage rates since 2022, when then-Chancellor Kwasi Kwarteng’s disastrous mini Budget spooked markets and caused interest rates to spike.
But the strain eased slightly on households over 2025, as mortgage rates gradually nudged down.
The average two year fixed rate mortgage was 5.46% at the start of the year – but now sits at 4.93%, according to comparison site Moneyfacts.
This is because the Bank of England has made four cuts to the base rate over 2025.
As mortgage rates are linked closely to the base rate, when it falls, so do mortgage rates.
It’s not just mortgage rates that are baffling buyers though. Many have been spooked since stamp duty thresholds dropped in April, meaning homemovers now start paying the controversial tax on the value of purchases above £125,000 instead of from £250,000.
First-time buyers saw their exemption drop from £425,000 to £300,000.
This adds to the cost of buying a property and many have paused their purchase plans.
Sellers have also faced a tougher time shifting their homes unless they are willing to lower prices to account for the higher costs that buyers face.
Chancellor Rachel Reeves also hasn’t helped. There had been rumours since September that her Autumn Budget would contain stamp duty changes, such as making sellers pay the tax instead, which derailed activity.
In the end, she only lumped prime property owners with a mansion tax on homes worth £2 million and above.
What will happen to house prices in 2026?
It’s hard to say for certain what will happen to house prices next year – but experts are in agreement that they will nudge up.
Estimates vary depending on who you speak to.
Zoopla is predicting that house prices will rise by 1.5% next year, while estate agency brand Hamptons is expecting a 2.5% increase.
Nationwide expects prices will rise between 2% and 4% over next year, while Halifax thinks prices will go up between 1% and 3%.
Richard Donnell, executive director at Zoopla, thinks buyers will kickstart their house hunt at the beginning of the year, sparking slow house price growth.
“The appetite to move home remains strong but mortgage pricing is still holding many back, which will keep prices in check.”
He suggests growth will be higher in the north of England – where cheaper homes could attract higher levels of demand than the more expensive south as many buyers have been priced out of the region.
Some may also be able to work remotely or only need to commute into London once or twice a week, boosting their buying options.
Analysts say this is making the West Midlands and the north west of England – where house prices have traditionally been cheaper – more attractive for buyers looking to make their budgets stretch further.
That could push prices up in these regions as low levels of supply struggle to cope with increasing demand.
What will happen to mortgage rates in 2026?
Good news – experts believe mortgage rates will continue to fall over 2026, but it is unclear how far.
Mortgage pricing has already been slashed in the build up to the latest interest rate cut and the question is how much of the latest reductions are pricing in further falls.
Data from Moneyfacts shows mortgage rates have typically been around 0.8 percentage points above the Bank of England base rate.
This suggests average mortgage rates could start the year at around 4.5% and could drop to 3.8% if interest rates are cut to as low as 3% by the end of the year.
But the Bank of England is pretty cagey about when the next cuts will be, which brokers suggest may make lenders more cautious about their pricing.
Lorna Hopes, mortgage specialist at financial adviser Smith & Pinching, says the market is expecting at least one more interest rate cut in 2026, perhaps in February.
But she warns against holding out for mortgage rates to get even lower, adding: “We may already be close to the bottom of the interest rate cycle.”
A drop in rates will be at least some relief to those coming off a fixed mortgage deal next year.
There are around 1.8million fixed rate mortgages due to end next year.
Many of these borrowers will have taken out these deals when mortgage rates were significantly lower, so they should be bracing themselves for a bill spike when they come off their deal.
For example, the average five-year fixed rate mortgage was 2.64 per cent in December 2021, according to Moneyfacts. On a £200,000 loan with a 25-year term, that would make your monthly bill £911.
However, the average five year fixed rate mortgage is 4.9 per cent. On the same loan, that would make your monthly bill £1,157 – £246 more per month, and £2,952 over the year.
That means it’s important to sit down and do a budget rethink – you may need to cut down spending in other areas, like food or treats, to afford a bigger bill.
I’m a first-time buyer… is 2026 a good time to buy?
It’s currently a buyer’s market – and this is expected to continue into next year.
That means first-time buyers have more choice and potentially more negotiating power to get a price cut.
Rightmove has reported that the number of homes listed for sale is at a 10-year high – and this is due to a number of reasons.
Many homes have been stuck on the market since stamp duty thresholds dropped in April.
This means a bigger tax bill for buyers – which could be offputting for many people, enough to put their plans to buy on hold.
Also, intense speculation around what would happen in the Budget spooked buyers too, and sales drastically dropped.
That means the number of homes on the market is starting to outweigh demand – so buyers hold all the cards.
That’s great news for first-time buyers, who can negotiate a bargain with sellers desperate to move.
As first-time buyers are not in a chain, which means they can move quicker, that means they are in an even better position to put in a lower offer.
Polly Ogden Duffy, managing director at estate agency John D Wood & Co, said realistic pricing remains critically important in today’s market.
She said: “Buyers currently have more choice and are checking more closely that they will get value for money on their purchase.”
What help is out there for first-time buyers?
GETTING on the property ladder can feel like a daunting task but there are schemes out there to help first-time buyers have their own home.
Help to Buy Isa – It’s a tax-free savings account where for every £200 you save, the Government will add an extra £50. But there’s a maximum limit of £3,000 which is paid to your solicitor when you move. These accounts have now closed to new applicants but those who already hold one have until November 2029 to use it.
Lifetime Isa – This is another Government scheme that gives anyone aged 18 to 39 the chance to save tax-free and get a bonus of up to £32,000 towards their first home. You can save up to £4,000 a year and the Government will add 25% on top.
Shared ownership – Co-owning with a housing association means you can buy a part of the property and pay rent on the remaining amount. You can buy anything from 25% to 75% of the property but you’re restricted to specific ones.