Mortgage Costs Cool the UK Housing Market

UK housing market loses momentum as mortgage rates rise

The UK housing market entered April with a clear loss of momentum as higher mortgage costs weakened buyer demand and darkened the near-term outlook for house prices. ITV, citing the latest survey from the Royal Institution of Chartered Surveyors, reported that in March the net balance for new buyer enquiries fell to minus 39%, from minus 29% in February. That was the weakest reading since August 2023 and one of the clearest signs yet that the more constructive tone seen earlier this year has reversed.

Buyer demand and agreed sales weakened at the same time

Survey evidence shows that softer demand is already feeding through into weaker transactional activity. The net balance for agreed sales deteriorated to minus 34% in March, from minus 13% a month earlier. In addition, a net 33% of respondents expect sales activity to weaken further in the coming months. Looking 12 months ahead, the picture is still subdued, with the net balance for sales expectations at just minus 1%, pointing to a broadly flat market rather than a renewed recovery.

Why mortgage rates became the key pressure point again

Mortgage rates have once again become the main pressure point. RICS head of market research and analysis Tarrant Parsons said the mood across the UK housing market had shifted markedly over recent months and that the previously improving backdrop for activity had been knocked off course by rising borrowing costs and broader geopolitical uncertainty. With average fixed mortgage rates climbing back above 5%, it is no longer surprising that buyer demand has softened sharply.

How the rate backdrop changed buyer behaviour

British press coverage and market commentary in early April indicated that the average two-year fixed mortgage rate had climbed to around 5.84% to 5.9%, while the average five-year fixed was about 5.78%. That reflected fears that higher oil prices and renewed inflation pressure would reduce room for the Bank of England to ease policy. Even after some stabilisation in broader markets, mortgage costs remained at levels high enough to materially damage affordability.

House prices are holding up better than sentiment

Softer demand has not yet turned into a sharp house-price correction, but sentiment has deteriorated noticeably. According to the RICS survey, the net balance for house prices in March stood at minus 23%, meaning more surveyors reported falling prices than rising ones. For the next three months, the price-expectations balance dropped to minus 43%, showing a clear bias toward further weakness. The 12-month view was close to flat, with a net balance of just 2% expecting price growth over the year ahead.

The Halifax index reinforced that moderation. Halifax said on April 8 that UK house prices fell 0.5% month on month in March, bringing the average home value to £299,677, while annual growth slowed to 0.8%. That marked a notable retreat after a modest rise in February and suggests the market is losing momentum rather than entering a disorderly downturn.

Regional differences remain pronounced

The slowdown remains uneven across the country. The weakest readings were concentrated in London, East Anglia, the South East and the South West of England, where RICS indicators underperformed the national average. Halifax also highlighted London and the South East among the softer-performing regions, while Northern Ireland, Scotland and some northern regions continued to show price growth. That pattern suggests that higher-priced markets are reacting fastest to renewed mortgage-rate pressure.

Supply remains constrained while rental pressure persists

Supply conditions are not providing much relief. RICS said new instructions to sell remained subdued in March, while the amount of unsold stock on estate agents’ books rose to an average of 47 properties. That points to slower turnover and a gradual build-up of available stock. At the same time, the rental market remains tight, with tenant demand still rising while landlord instructions continue to fall, leaving pressure in place even as the sales market cools.

What the banking data show

Bank of England figures for February, which predate the March jump in mortgage costs, already suggested only limited momentum. Net mortgage approvals for house purchases rose to 62,600 from 60,200 in January, but remained below the previous six-month average of about 63,500. That means the market was not accelerating strongly even before borrowing costs moved higher again, leaving it more vulnerable to the March sentiment shock.

What it means for the UK housing market in 2026

The UK housing market is now caught between two opposing forces. On one side, limited supply and the absence of a major forced-selling wave are helping prevent a steep correction. On the other, the renewed rise in borrowing costs is once again the main constraint on buyer demand. For now, the market looks more like it is flattening out than entering a full crisis. But if fixed mortgage rates stay above 5% for a prolonged period and inflation risks remain elevated, the current stagnation in demand could become more persistent than expected earlier this year.

As International Investment experts note, the latest shift in the UK housing market shows that in 2026 the decisive variable for buyers is once again the cost of debt servicing rather than the availability of homes alone. When mortgage rates move back above the psychologically important 5% threshold, buyer demand weakens quickly, particularly in higher-priced regions, meaning the next phase for house prices will depend above all on whether financing conditions stabilise in the coming months.

FAQ

Why did UK housing demand weaken in March 2026?

The main reason was the rise in mortgage rates, which reduced affordability and weakened buyer confidence. Inflation fears and geopolitical uncertainty added further pressure.

What did the RICS survey show?

The net balance for new buyer enquiries fell to minus 39%, while the balance for agreed sales dropped to minus 34%, indicating a clear slowdown in market activity.

How high have UK mortgage rates risen?

Average two-year and five-year fixed mortgage rates moved back above 5%, with the average two-year fix rising to around 5.9% in early April.

Are UK house prices falling?

So far the decline is modest. Halifax reported a 0.5% monthly fall in March, with annual growth slowing to 0.8%.

Which regions look weakest?

London, East Anglia, the South East and the South West have shown weaker readings than the national average, while Scotland and Northern Ireland have been more resilient.

What is happening in the UK rental market?

Tenant demand is still rising while landlord supply continues to shrink, leaving rental-market pressures in place even as the sales market slows