UK housing market outlook: resilience and recovery in Q2

The Q2 data is in, and it shows a housing market that is more resilient than expected. Even as volumes continued to fall short of government targets, house prices rose across every UK region in the quarter for the first time in three years. But build costs increases continued to tighten margins and demand volumes remain uncertain. Together with softening mortgage approvals, this creates a sharper policy test for the second half of 2026.

The UK’s ambitious housing targets can only be achieved if they address the key barriers holding back delivery and stimulate activity through incentives for first time buyers. Can the new government change the cycle in time to have the impact needed?

UK house prices rise across every region in Q2 2026

Every UK region recorded house price growth in Q2 as prices increased by 1.4%. Momentum was strongest in the West Midlands, Wales and Scotland, while in contrast London and the South remained broadly flat. This reinforces the trends we have seen in performance in more affordable regions. Northern Ireland stands apart, with prices up 9% over the last 12 months while the North West continues to show the strongest sustained house price growth in England.

Transactions rose 4% to 282,000 across the UK, with Scotland seeing an increase of over 16%. These levels remain below historic norms as a result of ongoing affordability constraints.

Mortgage approvals fall but the economy holds up

Mortgage approvals fell 6% in Q2, with buyer demand cooling due to concerns around inflation and interest rate stability. Home approvals fell below 180,000 for the first time in two years as volatility caused by the Iran conflict and higher oil prices reverse the gradual recovery seen over the last year.

At the same time, mortgage rates rose sharply in Q2 2026 as lenders repriced risk. The 75% LTV two-year rate increased from 4.12% to nearly 5%, squeezing affordability further. While rates remain below the 2023 peak, they are still high by recent standards.

Despite this, the wider UK economy proved more resilient than expected during the period. Inflation slowed and the Bank of England held the base rate for the fifth consecutive time. We expect rates to stay stable through to the end of 2026, but any movements in energy prices could quickly impact that forecast.

Housing starts are recovering, but completions underline the viability gap

Viability pressures continue to define development as major housebuilders target a rebound in volumes. Housing starts rose 14% year on year in Q2, albeit against a low base, but completions remained weak.

Private residential completions were down 21% from the previous quarter at just above 28,000. This is further evidence that consumer confidence has fallen. But it also shows how planning issues and build costs are impacting completion, particularly for regional developers and higher density development such as Build-to-Rent. Housing association and local authority delivery has proved more resilient with completions increasing by 12% over the same period.

Land availability remains key to UK housing delivery

Andy Burnham’s first speech pledged the “biggest council housebuilding programme since the post-war period”. Beyond saying that public and vacant public land will be used to alleviate cost constraints, the industry is eagerly waiting to see what the new Prime Minister has planned.

Land values have held up as housing activity slowed, with values only just starting to fall. Many housebuilders now grapple with site viability, forecasting volumes and land purchases when planning for future development. Working capital has also tightened as completions slowed in 2025 and early 2026, creating a challenge around investing for future development while seeing a sustained lower volume of sales. Land is likely to see some impairment to values in the coming months as housebuilders decide whether to release previously acquired land in order to move forward with infrastructure and groundworks on sites that are already due to start.

Can devolution ignite housing delivery?

Global events set domestic politics in the background for much of 2026. That shifted with the opening of ‘Number 10 of the North’ and the renewed push for devolution. This has added more fuel to the debate over how housing delivery can be accelerated.

Andy Burnham’s record in Manchester provides some grounds for optimism. In his time as mayor, the city added more homes per 1,000 of the population than comparable locations. However, progress was flat across the wider Greater Manchester city region.

With devolution on the government’s agenda, the industry supports local decision-making, aligning housing targets and regeneration. This in turn supports investment with clearer pipelines in particular for affordable homes. However, there are still concerns around the planning reform and the resources, expertise and mayorship in place to allow decentralisation to be successful.

On paper, devolution could provide greater flexibility and ability to co-ordinate planning. But it’s unlikely to be a quick fix because long-term funding commitments and infrastructure investments are essential. National developers will welcome some aspects of devolution but be wary of others. In particular, any fragmentation of regional policies and standards are likely to add administrative and cost burden for housebuilders.

The outlook remains cautious until policy detail emerges

Ambition is not the issue, delivery is. Major viability issues holding back the housing market like funding, workforce and investment in technology, go deeper than devolution can fix. The market is likely to remain selective rather than stalled. The important details will come later in 2026 as Andy Burnham sets out more detail and economic plans. The test will be whether the policy and funding options are there to reduce delivery friction without adding cost and uncertainty.

Our outlook and predictions for the UK housing market in 2026

• House prices stagnate during 2026, with South East and London seeing additional pressures and falls in house prices by 2–3%.
• House prices grow by 17–20% in the four years to 2030, a reduction from 22% in earlier predictions.
• Housing completions increase in the remainder of 2026, driven by economic stabilisation and delays seen in spring.
• Housing starts rise in Q3 and completions increase in the back end of Q3 and Q4 of 2026.
• The Bank of England retains interest rates at 3.75% with inflation likely to tip 3% by the end of 2026, lower than predicted earlier in the year when inflation was expected to hit 4%.
• Mortgage reform boosts borrowing capacity for homeowners, providing further support to housing market demand.

If you would like to discuss the UK housing market further, please contact Kelly Boorman or your usual RSM contact.

Related insights