UK house price growth edged higher in January with values rising modestly as improving affordability continued to support buyer demand latest Nationwide HPI data reveals.
The building society said annual house price growth increased to 1.0% in January, up from 0.6% in December. On a month-on-month basis, prices rose by 0.3% after seasonal adjustments.
Mortgage approvals for house purchase dipped towards the end of last year, but remained close to pre-pandemic levels, suggesting underlying demand has been relatively resilient.
ALL ABOUT AFFORDABILITY
Nationwide said the outlook for activity in 2026 would depend heavily on affordability trends, which improved steadily last year as earnings growth outpaced house price inflation and mortgage rates continued to ease.
Robert Gardner, Nationwide’s chief economist, said the year had begun with “a slight pick-up in annual house price growth”, adding that housing market activity “also dipped at the end of 2025, most likely reflecting uncertainty around potential property tax changes ahead of the Budget”.
He said activity was likely to recover in the coming quarters “especially if the improving affordability trend seen last year is maintained”.
FIRST-TIME BUYERS
Nationwide’s analysis shows that affordability constraints have eased markedly from their peak in 2023.
A typical first-time buyer earning the average UK income and purchasing with a 20% deposit would now face mortgage payments equivalent to around 32% of take-home pay. That remains slightly above the long-run average of 30% but well below the recent high of 38% recorded two years ago.
The improvement has helped support first-time buyer demand, with this group accounting for a gradually rising share of house purchases during 2025.
PURCHASING POWER
Affordability improved across most of the UK over the past year, with the exception of Northern Ireland, where strong house price growth has pushed mortgage payments above the long-run regional average.
By contrast, London recorded the largest improvement in purchasing power for the second year running, reflecting subdued price growth, solid earnings gains and lower interest rates.
London remains the least affordable part of the country by a significant margin.
However, Nationwide cautioned that the capital remains the least affordable part of the country by a significant margin. Pressures also remain pronounced across much of the South of England, while mortgage payments as a share of take-home pay are now slightly below long-run averages in the North, Yorkshire and the Humber and Scotland.
Gardner said these regional differences were creating “stark differences emerging between those who would like to buy and those that can do so”.
In London, the average earnings of actual first-time buyers were around 45% higher than typical regional incomes, highlighting the scale of the affordability challenge.
In contrast, in areas such as the Midlands, first-time buyer incomes were much closer to regional averages, while in Scotland they were below average, “indicating relatively healthy housing affordability”, Gardner said.
INDUSTRY REACTION
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “The January sales borrowers were hoping for came to pass with a number of the big lenders trimming their mortgage rates in an effort to get the year off to a strong start.
“First-time buyers, who are so important for the functioning of the market, are returning, encouraged by lower mortgage rates at higher loan-to-values. While the Bank of Mum and Dad is having to play a big part, particularly in high-value areas such as London and the southeast, further easing of rates this year should help.
“While the markets are not expecting another interest rate cut from the Bank of England this month, the forecast is for potentially two or three base rate reductions this year, which will assist borrowers with affordability.
“Further cuts will also provide a welcome shot in the arm for the housing market which suffered from pre-budget speculation over property taxes which on the whole turned out not to be as bad as many feared.”
SUBDUED ACTIVITY
Karen Noye, mortgage expert at Quilter, said: “The market saw a small uptick in January but it was far from a roaring start to the year. With prices rising by 0.3% month-on-month and 1.0% over the past year, activity remains relatively subdued.
“This caution is understandable. With two or three base rate cuts expected later this year, many buyers are only tentatively engaging, weighing up whether to move now or wait for slightly cheaper mortgage rates to feed through. As a result, demand is being delayed rather than cancelled, particularly among first-time buyers who remain highly sensitive to affordability pressures.
“We are unlikely to see a period of rapid house price growth in the near future.”
“Realistically, this means we are unlikely to see a period of rapid house price growth in the near future. Affordability constraints remain a hard limit on how far prices can run ahead, even as borrowing costs begin to ease.
“That said, this looks less like a market losing momentum and more like one in a holding pattern.
“Mortgage pricing has already improved compared with this time last year, and further rate cuts should gradually ease monthly repayment pressures. As confidence builds, demand is more likely to strengthen steadily through the year rather than surge all at once.”
CONSTRAINED MOMENTUM
Daniel Austin, CEO and co-founder at ASK Partners, said: “Today’s modest rise in UK house prices points to underlying resilience, but momentum remains constrained by affordability pressures and a ‘higher for longer’ interest rate backdrop.
“While recent rate cuts signal easing inflation, they are unlikely to transform market conditions overnight. Mortgage pricing has improved, yet buyer and developer confidence remains fragile following a Budget that offered little direct stimulus for housing.
“The market is being shaped by structural rather than cyclical forces.”
“The market is increasingly being shaped by structural rather than cyclical forces. The UK’s forecast 1.4% growth rate, relative outperformance versus the eurozone, and sustained interest from Gulf and Southeast Asian capital continue to support long-term confidence.
“However, mainstream buyer activity remains subdued, with demand instead flowing into structurally undersupplied rental markets, particularly build-to-rent and co-living in well-connected suburban and commuter locations.
“While proposed planning and affordable housing reforms may improve scheme viability at the margin, elevated construction and financing costs will continue to pressure margins in the near term.
“A clearer downward path for rates towards the 3.5% range would help unlock stalled projects. Until then, capital is favouring resilient, income-led segments such as logistics, data centres, storage and other operational real estate, with real estate debt offering an attractive way to generate secured income while managing downside risk in a still-cautious market.”
MAKING DREAMS A REALITY
Louise Apollonio, sales and distribution director for retail mortgages at Shawbrook, said: “After a slowdown at the end of 2025, house prices have edged upwards in 2026, proving just how strong demand is amongst homebuyers.
“This has likely been helped by interest rates coming down to 3.75% at the end of December, prompting buyers and sellers alike to make their property dreams a reality in the new year.
“Looking ahead, market activity is expected to continue on a steady incline, especially in light of the recent wage growth figures, which showed a year-on-year increase.
“This will be helpful for first-time buyers who are hoping to move forward with their property ambitions this year. Beyond this, the Renters’ Rights Bill coming into power in May could theoretically provide first-time buyers with the opportunity to get on the property ladder as smaller landlords release more properties into the market.
“Whether or not this plays out has yet to be seen but this paired with the push for more new homes is a definite step in the right direction.”
EASING INFLATION
Tanya Elmaz, director of sales at Together, said: “House prices have risen, signalling a renewed sense of momentum as the year gets underway.
“Although mortgage rates have fallen gradually over the past year, buyer confidence had remained subdued, particularly towards the end of 2025 amid uncertainty following the Autumn Statement.
“We would expect the property market to gather pace in the months ahead if inflation continues to ease and the Bank of England maintains its rate-cutting trajectory.
“However, those waiting for more favourable conditions may find themselves caught out if demand surges and prices climb quickly.”
MISSED SDLT OPPORTUNITY
Tomer Aboody, director of specialist lender MT Finance, said: “The housing market is the backbone of the UK economy and even through the tough times with a looming Budget that was feared to have the potential to be hugely damaging, we have seen a stable market with buyers and sellers maintaining activity, albeit at a slower pace.
“The high cost of moving is still there, however, and putting off many from doing so, choosing to stay put and improve existing homes instead.
“Stamp duty in particular is a barrier to mobility, and with the Chancellor missing an opportunity to reduce or reform it in her Budget, the hope is that further interest rate reductions this year will improve affordability and further encourage first-time buyers onto the ladder.”
