Market Update: Inflation Falls, Rates Eye Cuts, and Rents Moderate
The start of 2026 brings some encouraging news for the UK property and mortgage markets, with several key indicators pointing towards a more favourable environment for buyers, homeowners, and even tenants.
Here’s a quick summary of the latest trends:
- Inflation on the Decline: Inflation fell to 3% in January 2026, a welcome dip from December’s 3.4%. This continued downward trend, coupled with rising unemployment (now at 5.2%), significantly increases the likelihood of further Bank of England interest rate cuts this year, potentially pushing the base rate closer to 3% by year-end, as reported by Bridging & Commercial and This is Money.
- Mortgage Rates Poised to Fall: With falling inflation and anticipated base rate reductions, swap rates (which influence fixed mortgage deals) are expected to decrease. This could lead to a “spring mortgage price war” among lenders, translating into better deals for borrowers. Experts suggest locking in rates early, particularly for those remortgaging or buying, according to This is Money.
- Property Market Gaining Momentum: There’s a noticeable uptick in buyer enquiries and sales instructions, signalling renewed confidence. The market appears to be shifting into “top gear,” with average house prices pushing through the £300,000 mark. This suggests a period of increased activity, as noted by Bridging & Commercial.
- Rental Growth Slows: For tenants, there’s some relief as average rental growth rates have fallen to their lowest in four years across the UK. England saw a 3.5% increase, while London’s rise was just 1.1%. However, a persistent supply-demand imbalance, exacerbated by landlord concerns over regulation and taxation, could still create upward pressure on rents in the long term, explains Mortgage Solutions.
Outlook:
The overall sentiment is one of cautious optimism. As inflation stabilises and the prospect of lower interest rates becomes clearer, the property market is showing signs of robust recovery. While the rental sector faces its own challenges, the moderation in growth offers a temporary breather. For anyone looking to buy, sell, or remortgage, the coming months could present compelling opportunities.
