Sellers are adjusting expectations as demand softens
Mortgage rates surging to a two-year fixed average of 5.68% and a quarterly transaction shortfall of 30,000 completions below the five-year norm have left the UK housing market under significant strain in mid-2026, with buyer confidence weakening and deal timelines stretching.
Annual house price growth across major indices stands at roughly 1.2%, according to the HomeOwners Alliance. January's surge in asking prices now appears to have been a temporary rebound, giving way to a more price-sensitive market. Savills has revised its 2026 forecast to a 2% price growth, while Knight Frank, which had projected 3% growth, has revised its expectations to 1.5%.
Average mortgage rates jumped from 4% at the start of 2026 to 5% in April, according to Bank of England data, with the two-year fixed rate climbing to 5.68% as of June 1, up from 4.83% in early March.
Sellers adjust expectations
Jeremy Leaf, north London estate agent and former RICS residential chairman, said asking prices are losing their grip on reality. "In our offices, sellers wanting to attract genuine buyers have been obliged to accept a larger dose of realism when it comes to asking prices, which are increasingly recognised as an aspirational starting point only," Leaf said.
He pointed to flat inventory as a growing obstacle for entry-level buyers. "The amount of available stock — particularly flats — as well as concerns about the cost of living and mortgage rates, are making first-time buyers nervous about making financial commitments so the market is becoming even more price sensitive," Leaf said.
Leaf added that prolonged deal timelines are creating further risk. "Most sales are holding up but that lingering uncertainty about economic prospects is prompting lengthier transactions, which in turn increases the risk of further re-negotiation or even collapse," he said.
According to RSM UK's Q1 2026 housing tracker, completions reached 269,000 in the first quarter, around 30,000 below the five-year quarterly average, with transactions and volumes remaining below historic norms.
Needs-based demand keeps sales moving
Tomer Aboody, director of specialist lender MT Finance, said reduced buyer conviction is reshaping the market. "There is a lack of confidence in the housing market as buyers adopt a more cautious approach and are not prepared to pay over-the-odds, particularly when they have so much choice," Aboody said.
He noted a widening geographic divide. "Affordability remains the main driving force, as buyers, especially those purchasing for the first time, find it easier to get on the ladder beyond London and the south east, particularly in the north of England, where prices are lower," Aboody said.
Despite elevated borrowing costs, Aboody said needs-based demand has kept a floor under sales. "Although mortgage rates are higher than this time last year, the sales market hasn't been impacted that much as needs-based buyers still have to move and are taking advantage of higher leveraged deals in order to buy. However, the market could do with some encouragement from the government, in the form of lowering stamp duty, which would boost transactions and benefit the wider economy," he said.
That call is widely shared. According to RSM UK's Real Estate 360 outlook survey, 33% of respondents ranked stamp duty reform as the top incentive needed to stimulate the market.
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