The latest consensus economic forecasts from HM Treasury provide a clear picture for what to expect for the economy and therefore the housing market in 2026.
Whilst economic growth is expected to be modestly weaker over 2026 (at 1.1%) this is close to the level that has historically been sufficient to drive positive house price growth.
The surprise drop in inflation in November (to 3.2% from 3.6% a month earlier) strengthened the hand of the Bank of England to reduce interest rates in December. The Bank Rate is forecast to be 3.5% by the end of 2026, suggesting one further 0.25 percentage point cut this year.
Resilience in earnings growth as well as earnings running ahead of inflation is a positive for household finances and housing demand.
Both lower interest rates and continued wage growth are combining to improve mortgage affordability. Overall, therefore, for the housing market this economic backdrop should amount to a solid year for price growth (low single digit growth forecast).
Transaction levels have been running strong in line with the 10-year average of 1.2 million a year – this rate should continue in 2026. Source: Dataloft by PriceHubble, HM Treasury Consensus Forecasts Nov 2025