The housing market feels more balanced than it has for some time, but that calm shouldn’t be confused with clarity. Recent reductions in the base interest rate and a period of price stabilisation have eased some of the immediate pressures that have dominated over the last couple of years.
At the same time, economic growth remains sluggish, budget concerns are continuing to influence sentiment, and the regulatory environment for landlords is becoming far more demanding.
What is emerging is not a single, unified market, but one where different segments are moving in very different directions - and at very different speeds.
Buy-to-let - a sector under sustained pressure
While owner-occupier confidence is gradually improving, the buy-to-let sector continues to struggle. The reduction in interest rates has provided some relief on financing costs, but it has done little to change the overall outlook for landlords, where profitability and long-term viability remain under pressure.
2026 brings with it a concentration of challenges, rather than a single defining issue. Taxes remain a central concern, with capital gains tax influencing decisions around portfolio restructuring and exit strategies. Stamp duty costs remain a barrier to fresh investment and discourage transactional activity, particularly for landlords considering expansion or re-entry into the market.
At the same time, compliance costs are rising. EPC requirements are becoming increasingly difficult to ignore, especially for landlords holding older or less energy-efficient stock. For some, the cost of upgrading assets to meet minimum standards materially alters the viability of keeping these properties.
Layered on top of this is the introduction of the Renters’ Rights Bill, which introduces further obligations and reduces flexibility within the private rented sector. These changes combined together are reshaping how landlords assess risk, return, and long-term commitment to the sector, with many planning to sell up and leave the sector.
The result is a market that is struggling to attract new capital. Many landlords are reassessing portfolios, reducing exposure, or choosing to exit altogether. This is not simply a reaction to interest rates, but the cumulative impact of cost, regulation, and reduced optionality.
Activity returns for family homes, but confidence still lags behind
There is little doubt that lower borrowing costs and stabilising prices are helping to drive renewed interest for family homes, particularly across West and South West London. For many households, the decision to move had less to do with desire and more to do with uncertainty. As interest rates have eased, and prices stopped falling, that uncertainty has begun to soften.
Buyers are no longer trying to second-guess the market. Instead, they are making pragmatic decisions based on long-term priorities: space, schools, transport links, and overall liveability and quality of life. This shift away from short-term towards longer-term planning is one of the more encouraging signs for the year ahead.
That said, confidence remains fragile. Economic growth forecasts are underwhelming and there is little evidence that government policy is actively stimulating housing market momentum.
Another factor weighing on sentiment for families is the introduction of the additional council tax surcharge on properties valued at £2m and above - the so-called “mansion tax”. In London, where £2m often buys a standard family home in a desirable area, rather than a luxury property, this surcharge can make finding the right home more difficult. Families moving up the ladder may now face higher purchasing costs, adding a layer of complexity to an already competitive market and encouraging more cautious decision-making.
The result is a market where activity is returning, but cautiously. Buyers are deliberate, price sensitivity remains high, and transactions take longer to progress. This is not a market driven by urgency, but by considered necessity.
Development and redevelopment as the most consistent source of growth for investors
Against this backdrop, it is no surprise that development and redevelopment continues to attract attention. In a market where traditional buy-to-let offers diminishing appeal, the ability to actively create value has become more important than ever.
Opportunities are strongest where there is a clear imbalance between supply and demand - particularly for well-designed family homes. Small-scale development, extensions, refurbishments and change-of-use projects are increasingly being viewed as a more controlled and predictable route to growth, especially when they’re closely aligned with local demand and buyer expectations.
What matters most in this environment is clarity, rather than momentum. Developers and investors are focusing less on chasing price growth and more on delivering the right product in the right location, with realistic assumptions around cost and exit.
What is becoming increasingly clear is that the margin for error is narrower than it once was. Successful projects are those that respond directly to how people want to live now, not how markets behaved in previous cycles. Energy efficiency, layout, location, and long-term running costs are no longer secondary considerations - they are central to both buyer demand and value.
Looking ahead, this year is unlikely to deliver dramatic shifts in overall activity. Stability may have returned, but it is a more disciplined, more selective market than before. Those who recognise that shift and adapt accordingly, will be best placed to navigate what the year has to offer.
