Despite weaker headline figures, the UK housing market is still fiercely competitive and fast-moving
Rent and house price growth both cooled at the turn of the year, according to the latest figures from the Office for National Statistics (ONS), offering a tentative sign that housing-related inflation is losing some steam while underlying pressures in the market remain.
Rental growth slows, but regional pressures remain acute
Provisional ONS data show that average private rents across the UK were 3.5% higher in the 12 months to January 2026, taking the typical monthly rent to £1,367. That represents a slowdown from annual growth of 4% in the year to December 2025 and suggests that the pace of rent rises is easing, albeit from elevated levels.
The headline figure masks significant regional variation. In England, average private rents climbed to £1,423, also up 3.5% year-on-year, while Wales recorded one of the fastest increases, with average rents reaching £826 on the back of 5.8% annual growth. In Scotland, rents rose to £1,021, an increase of 2.6% over the same period. The latest available figures for Northern Ireland, covering the 12 months to November 2025, show average rents at £875, up 5.6% over the year.
Within England, the gap between regions is stark. Annual rental inflation was strongest in the North East at 8% in the year to January 2026, while London saw the weakest growth, with private rents rising just 1.1% over the same period. For advisers, the data underline a two‑speed rental market where affordability constraints and local supply-demand dynamics are playing out very differently.
Alex Upton, managing director, specialist mortgages and bridging finance at Hampshire Trust Bank, said that despite the moderation in rental growth, the structural imbalance between tenant demand and available stock has not gone away.
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“While rental growth has moderated, the supply and demand imbalance remains firmly in place. Tenant demand continues to outstrip available stock, and landlord confidence is under pressure. In a market this finely balanced, even a modest reduction in supply can translate quickly into renewed upward pressure on rents.
“Landlord behaviour is shifting. Expansion is no longer the default strategy. Many smaller investors are reassessing exposure where returns have been eroded by taxation and regulation, and some are choosing to exit selectively. At the same time, more professional landlords are consolidating and repositioning rather than retreating. There is a clear move towards assets that offer stronger income resilience, including HMOs, semi-commercial and mixed-use property. Incorporation remains a consistent trend, but it introduces complexity around structuring, tax planning and long-term funding.
“These adjustments are changing the shape of funding demand. Landlords are not simply refinancing at maturity. They are releasing capital selectively, restructuring ownership, consolidating borrowing and adapting portfolios to reflect tighter regulatory requirements. That requires assessment based on judgement and experience, particularly where portfolios span multiple assets or income models.
“A sustainable rental sector depends on confidence and clarity. If policy, taxation and funding conditions continue to feel uncertain, investment decisions will remain cautious. Over time, that caution feeds directly into supply. Stability in the rental market depends on consistent signals and finance that supports long-term viability.”
For brokers and lenders, the message is clear: rental inflation may be cooling in the data, but the underlying fundamentals remain fragile, and funding needs are becoming more complex as landlords reshape portfolios rather than simply roll existing deals.
House price inflation edges down after expected December dip
The ONS house price index shows that average UK property values were 2.4% higher in the 12 months to December 2025, taking the typical home to around £270,000. That marks a slight slowdown from annual growth of 2.8% in the year to November 2025 and reflects what many in the industry view as a natural pause after a period of heightened uncertainty around the Budget.
Regionally, England saw the average price rise to £292,000, up 1.7% year-on-year, while Wales posted stronger growth, with average prices climbing to £215,000, a 5% annual increase. Scotland recorded average values of £191,000, 4.9% higher than a year earlier. The aggregate figures again conceal diverging trends, particularly between London and the rest of the UK.
Jason Tebb, president of OnTheMarket, said the latest release confirms that values are still edging higher overall, even if the national average glosses over some pronounced local differences.
“Property values continued to rise on an annual basis in December, with the average price £6,000 higher than a year ago, as there was finally clarity after a prolonged period of uncertainty in the run-up to the Budget.
However, once again the average UK house price conceals some wide regional disparities, with values in London contracting by 1 per cent on a yearly basis. Increased supply, low buyer demand and stretched affordability in the capital – where values tend to be significantly higher than elsewhere – are combining to keep a lid on prices.
With inflation slowing to 3 per cent in the year to January and moving closer to the Bank of England’s 2 per cent target, this should enable further base-rate reductions. The six cuts in base rate over the past 18 months have improved affordability and had a huge positive impact on the market, with any further cuts likely to lead to renewed activity this year.”
Jeremy Leaf, a north London estate agent and former RICS residential chairman, noted that the ONS index remains one of the broadest barometers of the market, capturing both mortgaged and cash transactions and therefore offering a rounded view of underlying trends.
“This is the most comprehensive snapshot of all the housing surveys as it includes approximately 40 per cent of cash as well as mortgages sales, showing a steady rather than spectacular improvement in prices.
“Although a little dated, it reflects the period just before and after the Budget so demonstrates considerable buyer and seller resilience at a time of economic uncertainty which we also noticed on the ground.
“Looking forward, December’s modest reduction in interest rates and the prospect of further cuts over the next few months have given the market a lift. However, the amount of stock available and likelihood of even more choice given the increasing number of appraisals, will keep any price increases firmly in check.”
Together, the rental and house price data suggest a market that is stabilising rather than surging: growth is slower than a year ago, but values are still edging upwards and regional differences are widening as local affordability and supply conditions bite.
Rates, confidence and the next phase for housing
The ONS release lands against a backdrop of falling headline inflation and rising expectations that the Bank of England will continue to ease policy over the course of 2026. That interplay between inflation, base rate and housing demand is shaping both borrower behaviour and lender strategy.
Chris Storey, chief commercial officer at Atom bank, argued that the latest inflation and price signals are accelerating competitive pressures in the mortgage market and raising the stakes on service and execution.
“This morning’s inflation data has poured fuel on a housing market that was already shifting into top gear. With inflation falling to 3.0%, the starting gun has officially been fired for a potential spring mortgage price war.
“Speed has rarely been more important. Not only has the ONS reported a rise in house prices today, but we’re seeing the average price tag push through the £300,000 barrier for the first time, according to Halifax. We face the prospect of buyers racing to lock in deals before further price growth erodes the benefits of the now widely expected base rate cut next month.
“With mortgage product choice at an 18-year high for those with low deposits and wages finally outstripping price growth, the pressure is now firmly on lenders and brokers to keep pace. Borrowers don't have time to hang about for weeks on end; they need a 'yes' in hours or days. In this market, transparency and underwriting speed aren't just 'nice-to-haves' - they are the only way to ensure buyers don't get left behind.”
From a policy and regulatory perspective, industry participants are also clear that monetary easing alone will not be enough to deliver a step-change in activity if structural constraints are not addressed.
Tomer Aboody, director of specialist lender MT Finance, said that while incremental price gains and lower inflation are welcome, the market still needs more decisive support to unlock its full potential.
“While we are still seeing a slight increase in average house prices, the market still needs a rocket to boost it and push it forward.
“The housing market in the UK will always maintain a certain level of activity due to demand outweighing supply, but to improve confidence and see some significant growth, we need a friendly government who will look to help the market either by easing off on stamp duty, helping investors by reducing the tax on rental income or via the Bank of England reducing interest rates further.”
For brokers and lenders, the latest ONS rent and house price figures underline a delicate transition phase. Rental and price inflation are both easing, base rate is expected to move lower, and demand is being supported by real wage growth and improving sentiment. Yet affordability remains stretched in many parts of the country, the rental sector is grappling with supply-side challenges, and investor confidence is highly sensitive to tax and regulatory signals.
The next few months will be crucial in determining whether this shift translates into a sustained, broad-based upturn in transactions – or simply a period of stabilisation before the market’s next test.
