The UK housing market experienced its first monthly price drop of 2026 in May, as higher mortgage rates and economic uncertainties cooled activity across the sector. The average home price fell by 0.6% from April, bringing the figure down to £278,024. Annual house price growth also slowed, dropping to 1.7% from the previous month’s 3%, signaling a deceleration in the market’s momentum.
Increased borrowing costs have contributed to the decline, with average fixed-rate mortgage deals remaining above 5.6%, making property purchases more expensive. This has led to reduced affordability and weakened buyer demand at a time of year that typically sees heightened activity in the housing market.
Property experts at Savills have adjusted their forecast, now predicting a 2% decrease in average UK house prices for 2026, having previously anticipated modest growth. Analysts expect the ongoing pressure from elevated financing costs and broader economic uncertainty to continue impacting the market in the months ahead.
Despite the current slowdown, some economists point out that mortgage rates remain below the peaks reached in 2023. They suggest that if financial markets stabilize and energy prices decrease, the recent downturn in the housing sector may be short-lived. However, challenges related to affordability and signs of a softer labor market continue to pose significant risks to the sector’s recovery.