UK House Prices Experience Modest Annual Growth as London Market Lags Behind
UK house prices demonstrated a modest upward trend last year, although the London property market continued to underperform significantly. This divergence stems from persistent affordability constraints, property tax speculation, and elevated mortgage rates that have particularly impacted the capital's housing sector.
National and Regional Price Movements
The average UK house price increased by 2.4 percent annually in December 2025, according to the latest Office for National Statistics data. This represented a slight deceleration from the 2.8 percent growth recorded in the year to November. On a monthly basis, property values declined by 0.7 percent in December, bringing the average house price to £270,000.
Regional disparities were pronounced throughout the United Kingdom. England reported the slowest annual growth at just 1.7 percent, with average prices reaching £292,000. In contrast, Wales experienced robust 5.0 percent growth to £215,000, while Scotland saw prices increase by 4.9 percent to £191,000.
Paige Tao, an economist at PwC UK, commented on the year-end market conditions. "While December is typically quieter for the housing market, this slowdown was more pronounced than usual," she explained. "The delayed Autumn Budget left buyers waiting for policy clarity, with many pushing decisions beyond the festive period to the New Year. At the same time, a backlog of previously delayed listings returned to the market, giving buyers more choice and putting modest downward pressure on prices."
London's Persistent Property Slump
The North of England continued its upward property price trajectory, with the North East reporting the highest annual house price inflation at 4.6 percent. This was closely followed by the North West at 4.5 percent and Yorkshire and the Humber at 3.3 percent.
Meanwhile, London's housing market faced continued challenges as prices slipped by one percent annually. This decline was more severe than the 0.7 percent decrease recorded in the twelve months to November. Despite this downturn, the capital maintains the highest average house prices nationally at £551,000.
Jonathan Hopper, chief executive of Garrington Property Finders, analyzed London's market conditions. "This is due to the conjunction of two factors, too much supply and not enough demand," he stated. "With plenty of homes for sale, buyers in the south could afford to be choosy, take their time and drive hard bargains. London's softer performance is also the product of stretched affordability, higher borrowing costs and more cautious sentiment at the upper end of the market. The capital's more pressured labour market adds another headwind, but it is part of a broader picture rather than the sole cause."
Rental Market Trends and Regional Variations
The average UK monthly rent reached £1,367 in January 2026, representing a 3.5 percent annual increase. However, rental growth in England slowed to 3.5 percent year-on-year, marking a 3.9 percent deceleration and the lowest annual growth rate since March 2022.
Regional rental inflation patterns mirrored housing price trends. The North East recorded the highest annual rent inflation at 8.0 percent, followed by the North West at 6.0 percent and the West Midlands at 5.4 percent.
London experienced the lowest annual rent inflation, increasing by just 1.1 percent in the twelve months to January, down from 2.1 percent in the year to December. Despite this slowdown, London maintained the highest average rent prices at £2,253, while the North East reported the lowest at £767.
Nathan Emerson, chief executive of Propertymark, offered perspective on rental market dynamics. "A slowing in the annual growth of rents may offer some relief for tenants but can also be attributed to localised shifts in demand or changes in supply dynamics," he noted. "However, month on month, rent levels continue on an upward trajectory, therefore, policymakers must focus on creating conditions that encourage investment and maintain adequate rental stock to ensure the sector remains stable and able to meet housing need over the long term."
Market Outlook and Future Considerations
Despite the subdued end to 2025, the housing market has shown signs of improvement in early 2026. Halifax reported that average house prices crossed the £300,000 threshold, indicating a slightly better start to the new year.
Industry experts have highlighted that affordability remains a significant challenge, particularly for first-time buyers. Ian Futcher, a financial planner at Quilter, emphasized this concern. "While mortgage rates have eased from their highs, affordability remains a key issue and many are still facing the prospect of a sharp jump in their monthly repayments when they come to remortgage or secure a new deal," he explained. "However, lenders are increasingly competing for the limited custom, and we are regularly seeing pricing tweaks and new product launches which could bring more options for prospective buyers."
Market observers are closely monitoring the potential for a Bank of England rate cut, which could potentially occur in March. This monetary policy decision is expected to significantly influence the housing market outlook, potentially easing borrowing costs and stimulating buyer activity across different regions of the United Kingdom.
