The mortgage and housing market continues to face a combination of political uncertainty, inflationary pressure and shifting buyer behaviour, all of which are influencing borrower and lender confidence heading into the second half of 2026.
Last month we explored the impact of Keir Starmer's resignation, persistent inflation, house prices and sales as well as mortgage cancellations hitting record levels throughout early 2026. While the market is undoubtedly more challenging, transaction levels suggest that buyers and homeowners are continuing to adapt rather than retreat.
Government Leadership & Market Confidence
The UK is no stranger to political change. However, with Keir Starmer's resignation creating uncertainty over the direction of government, and Andy Burnham widely considered the frontrunner to succeed him, advisers once again find themselves guiding clients through an evolving political landscape.
Financial markets traditionally dislike uncertainty, and at present the concern is less about who is currently in office and more about what future leadership could mean for fiscal policy and government borrowing.
Any potential successor will inevitably be judged through the lens of fiscal discipline. A leader viewed as fiscally cautious and market-friendly could help steady investor confidence and ease gilt yields. Equally, markets may become more cautious if leadership changes point towards higher public spending, increased borrowing or weaker fiscal rules.
Current frontrunner Andy Burnham has already sought to reassure markets by committing to maintaining existing borrowing limits, should he eventually become Prime Minister. Burnham, after winning the Makerfield by-election now needs to secure victory in a Labour leadership contest.
The government’s current fiscal rules are designed to limit borrowing for day-to-day spending and ensure that national debt as a proportion of GDP is falling by the end of this Parliament, currently expected in 2029.
Until the political outlook becomes clearer, markets are likely to remain cautious. A factor that could continue to influence swap rates and, ultimately, mortgage prices.
Inflation Eases with Further Rises Expected
Inflation remained unchanged at 2.8% in the year to May, according to the Office for National Statistics (ONS). Lower energy prices and previous government support measures helped contribute to the decline. However, economists are warning that the improvement could be temporary. Ongoing disruption to global energy supplies caused by tensions around the Strait of Hormuz is already pushing oil and energy prices higher.
Industry experts predict household energy bills could rise by approximately £209 annually from July, while petrol prices are reportedly around 25p per litre higher than before the recent conflict escalation. Many analysts now expect inflation to climb again, potentially reaching close to 4% by the end of 2026.
Persistent inflation remains a key factor to monitor. If inflation proves more stubborn than anticipated, expectations for faster mortgage rate reductions may continue to be pushed back, reinforcing the need to manage client expectations around affordability and product availability.
House Prices & Sales
The latest housing market data presents a mixed picture. According to the UK House Price Index for March 2026, average house prices in England fell by 0.5% month-on-month, with annual prices down 0.6%, leaving the average property value at approximately £290,000.
However, separate data from Rightmove shows that asking prices for homes coming to market increased by 1.2% in May 2026, bringing the average asking price to £378,304, an increase of £4,333. One notable trend is the growing supply of homes available for sale. The number of properties on the market is now at its highest level for this time of year since 2015, and nearly one-third of listings are seeing price reductions.
The speed of sale also differs significantly depending on pricing strategy:
- Homes priced correctly from the outset are selling in an average of 36 days.
- Properties requiring price reductions are taking an average of 127 days to secure a buyer.
Regional performance continues to vary sharply between the North and South:
- North-East: +2.7%
- North-West: +2.6%
- London: -2.4%
- South-East: -1.6%
Despite affordability pressures caused by higher mortgage rates and ongoing cost-of-living concerns, agreed sales are reportedly down by only 4% compared with the same period in 2025, suggesting that buyer demand remains relatively resilient.
Mortgage Cancellations Reach Record Levels
Mortgage cancellations have surged to record highs in early 2026, underlining the uncertainty currently affecting borrowers. According to Bank of England data, the value of mortgages cancelled before completion reached £8.7bn in Q1 2026, the highest figure on record.
The number of cancelled mortgages rose 6.1% year-on-year to 35,144 cases during the first quarter, while the total value of cancellations increased by 12.3% compared with Q1 2025. This rise has occurred despite mortgage approvals actually falling by 2.7% over the same period.
Market volatility appears to be a major contributing factor. The interest rate spike, triggered by geopolitical tensions earlier this year, has caused many borrowers to reconsider their options. Some have chosen to switch products in search of lower rates, others have held multiple mortgage offers simultaneously, and some transactions have collapsed entirely due to affordability concerns or uncertainty around future borrowing costs.