North-South divide in the second half of the cycle
Housing market conditions are challenging in 2026. Rising interest rates have made mortgages more expensive, and the state of politics, both domestically and internationally, makes for some pretty miserable pub sessions and dinner parties. But if you’re in the north, you might not see what all the fuss is about.
Taking the North West, for example, house prices have risen by 2.4% in 2026 so far, and are 8.8% higher than at Liz Truss’ fateful mini-budget four years ago, according to Nationwide. And housing market activity this year has been 5% above the 2017–19 average, measured by net agreed sales from TwentyCi. Not exactly barnstorming, but hardly a sign of distress.
This sits in stark contrast to markets in the south, where prices are mostly falling and activity is lower. In the South West, for example, prices have fallen by -1.1% this year and activity is -9% lower than in 2017–19.
With demand in some areas holding up much better than others, it begs the question: what are the ingredients you need for a positive housing market?
It won’t shock you to hear that the bulk of the meal comes from having homes which people can afford. In the three northern regions of England, and in Wales, the average home costs less than six times the average full-time earnings. That means two average earners can comfortably borrow enough to buy the average house while keeping within the bounds of mortgage regulation, even with a small deposit.
In London, this figure is 11.3, meaning buyers either need above-average incomes or very large deposits to get on the ladder. The average London first time buyer earned £96,000 and used a deposit of £122,000 in Q2 2026, compared to £53,000 and £27,000, respectively, in the North East.
No wonder, then, that demand has been stronger in more affordable regions in the last decade. This has caused prices to converge across the country, as is common in the second half of a housing market cycle, with prices rising by 53% in the North West and just 12% in London.
But the speed of convergence has been slower than the speed of divergence in the decade before that. This is a result of stricter mortgage regulation, which limits the degree to which house prices in each region can swing rapidly.
Despite roughly a decade of the north outpacing the south, the affordability gap remains wide. We therefore think that regional pattern of growth will remain very similar over the next five years.
Using locally grown ingredients
Another key element of a positive housing market is a strong local economy. Economic growth drives income growth, meaning more households can afford to buy. And it makes employees feel secure in their jobs, giving them the confidence to invest their savings and commit to a long-term mortgage.
In the decade to Q3 2016, London’s housing market was cooking up a storm, while prices were flat in the north. This was driven by London’s economy growing at double the UK average rate, according to ONS GVA data. Since 2016, the North West has been the country’s strongest growing economy, while Yorkshire and the North East also outperformed the UK average, again matching the pattern of house price growth.
When set alongside affordability, future economic growth can help us explain future housing demand. The two sometimes work against each other; London’s economy is forecast to grow the quickest nationally according to Oxford Economics, but affordability pressure will outweigh this and keep price growth low. But where the two forces are aligned, house price growth will be strong, such as in the North West, where GVA growth will outperform everywhere but London.
A final garnish which takes a housing market to the next level involves having an obvious tangible financial benefit to moving home. When interest rates were at rock bottom, mortgage payments were usually much cheaper than renting, meaning renters would save money month-on-month by buying. With higher mortgage rates, the gap to rental yields is smaller, so the saving has either shrunk or disappeared altogether. But there is still a reasonable saving, and a reasonable incentive to buy, in markets with higher rental yields, more commonly those further north.
We think those markets which will see the most robust demand in the next five years are those where homes are relatively affordable, where the prospects for economic growth are best and where buying makes obvious financial sense.
This is why we think growth will be highest in the North West, followed by the North East, Yorkshire, Wales and Scotland. For similar reasons, London will grow most slowly, with the South East and East of England only slightly stronger. As with our national forecast, 2027 will be a weaker year across the board. However, prices will be steadier in the northern markets, and there will be more significant falls further south.
The same logic applies to growth within regions. Manchester is the poster child of successful devolution, and we think its housing market can outperform the North West average. Homes are more affordable than the English average and its economy is forecast to be the strongest growing in the country, with investment appetite both domestically and from abroad.
Other major regional cities like Bristol, Leeds and Liverpool are also expected to outperform economically. This will support demand in those cities, but also the suburban markets around them, which often benefit from slightly better affordability. And in the south, markets like Reading, Bedford, Dartford and Peterborough combine relative affordability with good growth prospects, which could help them outperform their regions’ weaker forecasts.
Note: These forecasts apply to average values in the second-hand market. New build values may not move at the same rate
Read the other articles within our Residential Forecasts 2027–2031 below
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