Market Comment (January 2026) - Navigating the Mixed Signals of Early 2026
As we settle into 2026, the property market is sending decidedly mixed messages. The final weeks of 2025 saw a cooling effect, with Halifax reporting that average house prices fell 0.6% in December to £297,755 – the lowest level since June. Annual growth slowed dramatically to just 0.3%, suggesting the market was ending the year on a subdued note.
Yet something remarkable happened after Christmas. Rightmove recorded a record 2.8% monthly jump in asking prices during January, alongside a 57% surge in buyer enquiries and an extraordinary 81% increase in new properties coming to market in the fortnight following the festive period. As Colleen Babcock from Rightmove observed, it represents "an encouraging start to the year to see sellers confident enough to list their homes at higher prices."
This creates an intriguing paradox: achieved sale prices are falling whilst asking prices are rising. Understanding this gap is crucial for anyone looking to buy or sell in the months ahead.
The Reality Behind Rising Asking Prices
The record jump in January asking prices – now averaging £368,031 – certainly suggests renewed seller confidence. Much of this optimism stems from the unwinding of uncertainty following last autumn's Budget, which had caused many potential movers to pause their plans.
However, market fundamentals tell a more cautious story. The number of homes currently for sale stands at its highest level for this time of year since 2014.
This abundance of choice has shifted negotiating power firmly into buyers' hands. Perhaps most tellingly, approximately one-third of properties already on the market have had their asking prices reduced, indicating that initial valuations aren't aligning with what buyers can afford.
In London specifically, the situation is even more pronounced. Zoopla's data shows that 12.7% of properties in the capital had price reductions exceeding 5% during the final quarter of 2025.
As Nathan Emerson from Propertymark puts it: "A modest fall in house prices highlights that affordability pressures are still weighing on the market, despite recent improvements in mortgage rates."
What's Driving the Market?
The property market in 2026 finds itself caught between competing forces, and the year's performance will depend on which proves stronger.
The positive factors are certainly compelling. Mortgage rates have improved significantly, with the average two-year fixed rate now at 4.29% – the lowest since the September 2022 mini-Budget. This saves a typical home-mover over £100 monthly, according to Rightmove's Matt Smith. The house price-to-income ratio has also reached its lowest point in over a decade, a development the Halifax highlights as genuinely improving affordability. Add to this the release of pent-up demand following the Budget, and transaction levels remain robust.
The headwinds, however, remain substantial. Beyond the elevated supply levels already mentioned, broader economic concerns continue to temper enthusiasm. Inflation worries and cost-of-living pressures haven't disappeared. Wage growth is slowing, and employment rates are flattening – both potential constraints on future buying power. Perhaps most significantly, the chronic undersupply of housing across the UK remains unresolved, limiting the potential for a truly robust recovery.
The North-South Divide Widens
One of 2026's most striking features is the growing divergence between regional markets. Northern areas and the devolved nations are significantly outperforming the South.
Halifax's latest data paints a clear picture: Northern Ireland leads with 7.5% annual growth, Scotland sits at 3.9%, the North East at 3.5%, and the North West at 2.8%. Wales managed 1.6%. Compare this to the UK average of 0.3% and London's negative 1.3%, and the pattern becomes unmistakable.
The resilience of northern markets stems from more favourable affordability. With lower price-to-income ratios, these areas prove less sensitive to mortgage rate fluctuations that have disproportionately affected higher-value southern markets. Zoopla's 2026 forecast suggests this trend will continue throughout the year.
London's Unique Challenges
The capital faces a distinct set of pressures that warrant closer examination. Extreme affordability constraints, higher transaction costs, and oversupply in certain segments have created what can only be described as a buyer's market.
Some postcodes are seeing particularly high levels of price reductions – South West London leads with 15% of properties discounted, whilst West Central, East Central, and W postcodes all sit at 14%. In West Central London specifically, over half of all properties have been on the market for more than six months, revealing a significant gap between seller expectations and buyer appetite.
There's also a structural shift occurring. Zoopla's Richard Donnell notes that nearly a third of homes currently for sale are former rental properties, as landlords exit the market. This isn't simply more supply – it's creating concentrated pressure on specific property types, particularly flats and smaller houses that previously formed the rental sector's core.
Interestingly, even within London, disparities exist. One source indicates prime central London prices fell 5% over the year to December, whilst prime outer London dropped only 0.2%. A post-Budget recovery in the high-value market saw sales of properties over £5 million rise 29% in Q4 2025.
For sellers, the message is clear: realistic pricing has never been more important. The January surge in asking prices reflects aspiration more than market reality. With abundant choice and persistent affordability pressures, properties priced accurately will sell; those that aren't will languish.
For buyers, particularly in London and the South East, conditions favour negotiation. The combination of declining mortgage rates, improved affordability metrics, and significant stock levels creates a genuine window of opportunity. Those targeting former rental properties may find particularly good value as this segment experiences concentrated selling pressure.
The era of rapid price growth has ended, replaced by a more stable, normalised market environment. Success in 2026 will require understanding these nuanced, regionally-specific conditions rather than applying broad national assumptions. It's a market that rewards patience, realism, and local knowledge above all else, with Trading Places here to assist you.
We make sure you make an informed move
If you would like to learn more about Leytonstone, what the area has to offer, and how to achieve your goals in the local property market, we can help. To arrange an appointment, call us on 020 8558 1147 or send us an email at info@tradingplacesproperty.com
You will find Trading Places Estate and Letting Agents at 46 Church Lane, Leytonstone, London, E11 1HE; and we look forward to assisting you.
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