Emeritus Professor Joe Nellis is economic adviser at MHA, the accountancy and advisory firm.

• A rise in mortgage rates will dampen house price growth in 2026.
• Resurgent inflation will increase affordability pressures on potential buyers.
• The housing market and the broader economy are mutually reinforcing (or undermining).

The latest Halifax House Price Index data suggests that the UK housing market is failing to gain momentum. House prices fell by an estimated 0.5% in March, following February’s 0.3% increase, leaving year-on-year price growth at only 0.8%. Any hopes that prices would pick up later this year have been severely damaged by the conflict in the Middle East.

Mortgage rates have already started rising again, driven by global uncertainty, heightened geopolitical risk, and resurgent inflation. A rise in UK bond yields and an expectation that the Bank of England will keep interest rates higher for longer means that buyers looking for both variable and fixed rate mortgages face higher financing costs. Even as overnight news of a ceasefire raises the prospect of an end to the conflict, further economic implications are already inevitable.

This is decisive for the housing market. Demand in the UK is highly interest rate-sensitive. As borrowing costs rise, purchasing power falls — quickly. Add rising consumer price inflation to this mix and affordability becomes a key dampener of house prices. What looked like a gradual recovery at the start of the year is now at risk of stalling.

Housing is not just a market. It is a transmission mechanism for consumer confidence, spending, and broader economic momentum, and we expect to see the worrying conditions across the global and domestic economy reflected in housing. And yet a stagnating economy and subdued housing market also feed into each other. A slower housing market weakens consumer confidence, limits mobility in the labour market, and dampens spending on big-ticket items — from home improvements to durable goods.

If housing stalls, parts of the wider economy will feel it.

This is no longer a national housing market

Despite this, we remain in a two-speed housing market. Lower-cost regions across the North, Midlands and Scotland are still growing modestly, supported by relative affordability. But in London and the South East, the story is very different. High prices combined with rising mortgage costs are suppressing demand. Transactions are weaker, and price growth is flat at best.