After a period of economic uncertainty, affordability pressures and cautious buyer sentiment, there are signs that the longer-term outlook for the UK housing market is more encouraging than some of the current headlines might suggest.
According to S&P Global Ratings, one of the world’s largest credit ratings agencies, the UK is expected to be among Europe’s stronger housing markets over the coming years. Although economic headwinds remain, the ratings agency believes persistent housing shortages will continue supporting property values across Europe, with Britain particularly well placed to benefit if borrowing costs ease.
Although planning reforms have been introduced to support housing delivery in the UK, S&P notes that it will take time before these changes translate into a meaningful increase in supply. The report highlights both the Planning and Infrastructure Act 2025 and reforms to the National Planning Policy Framework, but warns that housing starts in the first quarter of 2026 remained around 30% below their peak level recorded in the second quarter of 2023.
Upward trajectory
S&P is therefore forecasting UK house price growth of 2.0% in 2026, rising to 2.6% in 2027 and 3.7% in 2028. While these figures do not point to a housing boom, they do suggest the market is expected to remain on a steady upward trajectory.
Britain’s housing shortage is far from unique. The ratings agency’s latest European housing outlook reveals that housing construction remains too weak across much of the continent to ease price pressures. Despite higher interest rates and affordability challenges, there are still not enough homes being built to meet demand, leading S&P to forecast average European house price growth of around 4% in 2026 and more than 3% in 2027.
In Germany, for example, housebuilding is being held back by labour shortages, limited development land and complex planning procedures, and construction activity in France has fallen sharply in recent years. Spain, the Netherlands and several other markets are also attempting to boost housing delivery through new policy initiatives, but S&P believes that any meaningful improvements in supply will take time to materialise.
Mortgage affordability key
The report also highlights mortgage affordability as a key factor in the UK’s outlook. S&P says Britain has one of Europe’s most rate-sensitive housing markets, meaning any improvement in borrowing costs could have a disproportionately positive impact on prices.
Although its baseline forecast assumes the Bank of England will raise rates once in 2026 rather than continue cutting them, the agency also modelled a more favourable scenario involving lower inflation, lower long-term interest rates and slightly stronger employment.
Biggest uplift
Under those conditions, the UK would see one of the biggest uplifts in house prices among all the markets analysed, ranking second only to Germany for potential house price upside and ahead of France, the Netherlands and the other major European markets. For those weighing up where to invest their money, that could prove significant.
