The sell off of rental properties as a result of the Renters Rights Act is a contributing factor to the worsening housing market, says Savills.
The agency warns that average mainstream UK house prices are now expected to fall 2% by the end of this year.
And it expects the most significant pressure on prices to come over the summer when interest rates are expected to be at their highest.
The firm, which had previously forecast a rise of 2% in 2026, has also downgraded its forecast for price growth over the next five years.
The conflict in Iran and the resultant rise in mortgage rates has fundamentally changed the outlook for the UK housing market, it says.
A significant increase in inflation has meant that households are facing higher mortgage costs and reduced availability of debt. As a result, Savills has revised its forecast for 2026 down from +2% to -2%.
“Higher borrowing costs and weaker sentiment will weigh on demand through the remainder of 2026,” comments Lucian Cook, head of residential research at Savills.
“At the same time, lower demand is being set against elevated levels of stock – partially from landlords selling up in the face of greater regulation, which will place downward pressure on prices, particularly across submarkets in London and the South East.”
Cook continues: “Several factors will cushion the impact of these headwinds. Affordability is less stretched now, compared with 2022, following a slower recovery in prices.
“While stricter mortgage regulation and the widespread use of fixed-rate mortgages continue to keep the risk of forced sales low.
“Overall, this points to a modest adjustment in nominal house prices, with the greatest pressure likely to come over the summer as interest rates peak.”
But he admits that the main risk to this outlook is that a more protracted conflict in the Middle East leads to a sharper rise in inflation and, in turn, interest rates.
Savills cautions that this would result in a more significant short‑term pressure on house prices, followed by a more pronounced V‑shaped recovery.
As usual with Savills, it gives a more upbeat forecast for the medium term and beyond.
And it suggests that over the five years to 2030 average house prices wll increase 18.5% or £67,000.
| 2026 | 2027 | 2028 | 2029 | 2030 | 5 years to 2030 | |
| UK house price growth | -2.0% | 2.5% | 5.0% | 6.0% | 6.0% | 18.5% |
| CPI inflation | 3.9% | 1.9% | 1.9% | 2.0% | 2.0% | 12.2% |
| Bank of England base rate (at year end) | 3.75% | 3.50% | 3.00% | 2.75% | 2.50% | – |
| Assumed average mortgage rate (at year end) | 4.78% | 4.34% | 3.98% | 3.71% | 3.50% | – |
| Real GDP growth | 0.7% | 0.7% | 1.8% | 1.7% | 1.4% | 6.5% |
