The UK housing market is showing clearer signs of cooling as sellers cut asking prices for a second straight month, underscoring how policy uncertainty and changing supply-demand dynamics are reshaping pricing power. After years of elevated valuations and constrained inventory, the market is now adjusting to a more cautious buyer base, rising listings earlier in the year, and lingering concerns around taxation following November’s budget.

Sellers Adjust to a Softer Demand Environment

Average asking prices for newly listed homes fell 1.8% in the four weeks to December 6, bringing the national average to £358,138. This followed a similar 1.8% decline in November, marking a sharper-than-usual seasonal drop and pushing prices 0.6% lower than a year earlier. While modest in absolute terms, the back-to-back declines signal a shift in sentiment after a period when sellers largely dictated terms.

Earlier in 2025, affordability improvements and relatively stable borrowing costs helped support buyer activity, even after April’s stamp duty deadline in England. That momentum faded in the second half of the year as speculation over potential property tax changes intensified, prompting sellers to lower prices in an effort to draw hesitant buyers back into the market.

Policy Uncertainty Weighs on Confidence

The run-up to November’s state budget played a notable role in cooling activity. Rumors of tax changes circulated months in advance, creating a wait-and-see attitude among buyers and contributing to weaker demand later in the year. This uncertainty coincided with a reversal in supply trends: while the number of new sellers was 9% higher year-on-year in the first half of 2025, it fell to 4% below last year’s levels in the second half as confidence waned.

Buyer demand followed a similar pattern. Interest ran ahead of 2024 levels in the first half of the year but slipped meaningfully in the latter months, reflecting both affordability fatigue and psychological caution. Even so, the overall number of sales agreed in 2025 remains slightly higher than in 2024, suggesting the slowdown is more of a recalibration than a collapse.

Mortgage Rates Offer a Partial Cushion

One stabilizing factor is the gradual easing in mortgage costs. The average two-year fixed rate has fallen to 4.33%, down from just over 5% a year earlier. While still elevated compared with the ultra-low levels of the pandemic era, this decline improves monthly affordability and may encourage first-time buyers to re-enter the market as prices soften.

For many households, the combination of lower asking prices and improved financing conditions could create a narrow window of opportunity in early 2026. However, affordability remains stretched in absolute terms, and any recovery in confidence will depend on broader economic clarity and wage growth.

Looking Ahead to 2026

The introduction of a High Value Council Tax Surcharge on properties valued above £2 million, set to take effect in 2028, adds another layer of longer-term consideration for high-end markets. In the near term, expectations are mixed. While early 2026 could see renewed activity driven by pent-up demand and lower borrowing costs, forecasts point to only moderate price growth later in the year.

Much will depend on whether economic conditions stabilize and whether policymakers provide clearer signals on housing-related taxes. For now, the balance of power appears to be tilting slightly toward buyers, marking a notable change from the seller-dominated conditions of recent years.