UK housing recovery has stalled as inflation and political turmoil hit market confidence, warns property expert

The UK’s expected housing market recovery has stalled, with upward inflation, political instability and stubbornly high borrowing costs creating the most uncertain conditions seen in years, according to a leading property expert.

At the start of 2026, economists and industry figures widely expected falling inflation and lower interest rates to trigger a steady rebound in the property market. Instead, the opposite has happened.

Inflation has started climbing again, government borrowing costs have surged to their highest levels in decades and turmoil at the heart of Westminster has damaged confidence among buyers, sellers and developers alike.

He said: “There were effectively two versions of 2026. The first was the one everyone expected at the start of the year. Inflation would fall, interest rates would come down and political stability would finally allow the property market to regain momentum.

“Instead, five months later, that outlook has been completely overturned. Inflation is climbing again, borrowing costs remain painfully high and political chaos has returned at exactly the wrong moment for the housing market.

The recovery many expected has stalled before it properly began.”

Against that backdrop, Jonathan shares his predictions for the second half of 2026 below:

House prices will rise, but the market is weaker than headlines suggest

Rightmove’s May House Price Index recorded a 1.2% monthly rise in asking prices, but Jonathan says headline figures risk painting a misleading picture of the market.

“We may still see average sale prices rise by 1 to 2% over the course of 2026, but that should not be mistaken for a strong market recovery. Once inflation and rising living costs are taken into account, house prices are effectively going backwards in real terms. The real story is regional divergence. The Midlands and North of England are now doing most of the heavy lifting, while London and much of the South East are stagnating or falling. For the first time in years, the South is no longer driving the national market.”

Bank of England trapped by stagflation fears

The Bank of England has held the Bank Rate at 3.75% while inflation remains above target at 2.8%.Jonathan believes policymakers are now trapped between persistent inflation and a weakening economy.

“There is a credible argument for raising interest rates again, but I do not believe the Bank of England will risk it. The fear now is stagflation. Weak economic growth combined with sticky inflation creates a dangerous environment for households and the wider property market. People are already struggling with higher food bills, energy costs and taxation. Pushing mortgage costs even higher could seriously damage buyer confidence.”

Rents surged before reforms, but growth will slow sharply

The Renters’ Rights Act came into force on 1 May 2026, ending Section 21 ‘no-fault evictions’ and tightening rules around tenancy agreements and rent increases. Jonathan says many landlords increased rents ahead of the changes, creating a short-term spike that is unlikely to continue through the rest of the year. ONS figures show average UK private rents rose by 3.4% in the year to March 2026, with average monthly rents in England reaching £1,434.

“The rush to increase rents before the legislation came into force created an artificial spike in prices. Many landlords are leaving the sector, fewer rental homes are available and tenants have been competing for shrinking supply. But much of that adjustment has now happened. I expect rent growth to cool significantly during the second half of the year.”

Market heading for stagnation, not collapse

Despite the mounting pressures, Jonathan does not believe the market is heading for a crash. Instead, he expects a subdued second half of the year defined by hesitant buyers, slower decision-making and weaker investment activity.

“The housing market is proving resilient, but resilience is not the same thing as confidence. People will always move home because life changes force decisions. That will continue to support a baseline level of activity. But investors, developers and discretionary movers are becoming far more cautious. 2026 is increasingly looking like a year where the housing market survives, but struggles to move forward.”