"Housing market activity is likely to recover in the coming quarters, especially if the improving affordability trend seen last year is maintained"
- Robert Gardner - Nationwide
Nationwide reported that annual house price growth edged up to 1.0% in January, compared with 0.6% in December. Prices rose 0.3% month on month after seasonal adjustments. The average house price, not seasonally adjusted, stood at £270,873.
Robert Gardner, chief economist at Nationwide, said, “The start of 2026 saw a slight pick-up in annual house price growth, which rose to 1.0% in January, after slowing to 0.6% in December. Prices increased by 0.3% month on month in January, after taking account of seasonal effects.
“Housing market activity also dipped at the end of 2025, most likely reflecting uncertainty around potential property tax changes ahead of the Budget. Nevertheless, the number of mortgages approved for house purchase remained close to the levels prevailing before the pandemic.
“Housing market activity is likely to recover in the coming quarters, especially if the improving affordability trend seen last year (and explored further below) is maintained.”
Nationwide said improving affordability played a central role in supporting buyer demand during 2025, particularly among first-time buyers. Earnings growth outpaced house price growth over the year, while mortgage rates declined steadily, easing pressure on household budgets.
Gardner explained: “Our recent special report highlighted that affordability constraints have eased over the past year, thanks to earnings growth outpacing house price growth and also a steady decline in mortgage rates. This has helped underpin buyer demand, with first-time buyer activity over the last year continuing to edge higher as a share of house purchases.
“Our main affordability benchmark shows that a prospective buyer earning the average UK income and buying a typical first-time buyer property with a 20% deposit would have a monthly mortgage payment equivalent to 32% of their take-home pay – slightly above the long-run average of 30% and well below the recent high of 38% recorded in 2023.”
Regional trends showed uneven progress. Most parts of the UK saw affordability improve, although Northern Ireland moved in the opposite direction due to stronger house price growth.
“All parts of the UK, with the exception of Northern Ireland, saw an improvement in affordability over the past year,” he said. “Northern Ireland experienced a deterioration due to strong house price growth over the past year, with mortgage payments now above the long-run average in the region.”
London recorded the largest improvement in affordability for the second consecutive year, driven by weaker house price growth, rising earnings and lower interest rates. Despite this, it remains the least affordable region in the country.
“For the second year running, London saw the largest improvement in affordability, reflecting relatively weak house price growth in 2025, solid earnings growth and lower interest rates,” Gardner added. “Nevertheless, the capital remains the least affordable region by a significant margin.”
Affordability pressures also remained high in the South of England. In contrast, the North, Yorkshire & The Humber and Scotland saw mortgage payments fall slightly below their long-run averages as a share of take-home pay.
These differences have translated into varying patterns of who can enter the market. Nationwide compared the earnings of actual first-time buyers with regional average incomes used in its benchmarks.
“These regional variations in affordability have led to some stark differences emerging between those who would like to buy and those who can do so,” Gardner said.
“To explore this further, we looked at how the mean earnings for actual first-time buyers compared to the regional average incomes used in our affordability benchmarks.
“London stands out as the area with the greatest divergence, with actual first-time buyer earnings (for a single borrower) around 45% higher than average incomes in the capital.
“But in regions where affordability is less stretched, such as the Midlands, actual first-time buyer earnings tend to be much closer to regional averages. Moreover, in a few areas, most notably Scotland, the incomes of actual first-time buyers are below the average income in the region, indicating relatively healthy housing affordability.”
Industry analysts offered mixed views on short-term momentum.
Tom Bill, head of UK residential research at Knight Frank, said: “House prices edged higher in December as certainty following the Budget triggered a flurry of deals before Christmas."
"However, mortgage approvals in the same month were 9% below the five-year average, showing that demand is still fragile. The chances of two rate cuts this year have faded in recent weeks for reasons that include stronger-than-expected UK economic data, which underlines how prices and transaction levels will remain under pressure. The absence of political drama over the next few months would help confidence grow, but that might be wishful thinking.”
Nathan Emerson, CEO of Propertymark, said, “It’s encouraging to see the housing market gathering pace as we head further into 2026. We have witnessed growing consumer confidence over the last twelve months, more competitive mortgage deals being offered by many lenders, and an increase in homes being placed for sale.
“Although inflation continues to play influence on the Bank of England’s base rate decisions, as we progress towards the spring, it is hoped we may see further measured base rate cuts, which could further help invigorate overall affordability for many people who may have been cautiously keeping check on the market for their prime moment to jump into the buying and selling process.”
James Nightingall, founder of property search service HomeFinder AI, said buyer behaviour had shifted following the Christmas period. “Last month, the property market was boosted by house hunters who started their search during the Christmas holidays and lined up viewings for January. The majority of these buyers were keen to move sooner rather than later and didn’t hesitate to make an offer on their chosen property. As mortgage products are improving, and with a potential interest rate cut on the horizon, we expect buyer motivation to only grow stronger over the next few weeks.”
