The UK housing market is beginning to show tentative signs of recovery, with house prices appearing to stabilise after a challenging period. However, the rental sector remains under significant strain, and rents are expected to continue rising due to ongoing supply shortages.
That’s according to the latest residential market survey from the Royal Institution of Chartered Surveyors (RICS), which highlights a widening imbalance between tenant demand and available rental stock.
Rental Demand Rising as Supply Falls Further
In the lettings market, RICS reports that tenant demand increased in the three months to January 2026, with a net balance of +13% of surveyors seeing stronger activity.
This marks a shift after two consecutive quarters of flat or slightly negative readings, suggesting renewed pressure in the rental market.
However, landlord instructions continue to decline, with the net balance for new rental supply now standing at -24% — reinforcing the ongoing shortage of available homes to rent.
As a result, rental inflation is expected to persist, with +28% of respondents forecasting further rent increases in the near term.
House Prices Stabilising, But Regional Differences Remain
While sales activity remains subdued overall, the survey indicates that national house prices are beginning to steady.
The net balance for house price movement improved to -10%, up from -19% in October 2025 — signalling that the sharpest period of decline may now be easing.
That said, regional disparities are becoming more pronounced. Price performance remains strongest in:
- Scotland
- Northern Ireland
- The North West
- The North of England
Meanwhile, London and much of the South — including the South East, South West and East Anglia — continue to lag behind.
Buyer Enquiries Improving Gradually
New buyer demand also showed signs of improvement in January, with the net balance for enquiries rising to -15%, up from -29% in November.
Although still negative overall, the trend suggests that the downward pressure on demand is beginning to soften.
Outlook: Gradual Recovery Dependent on Rates and Confidence
Simon Rubinsohn, Chief Economist at RICS, noted that the market may be entering a period of gradual improvement, though activity levels remain muted:
“There are early signs that market conditions may be improving after a challenging period, although any recovery is likely to be gradual… Whether this tentative improvement develops into sustained momentum will depend heavily on the trajectory of mortgage rates and broader macro confidence.”
Short-term expectations remain cautious, with sales forecasts over the next three months easing slightly to +4%.
However, longer-term sentiment has strengthened significantly. RICS reports that optimism for the next twelve months has surged to +35%, the strongest reading since late 2024.
Price expectations have also improved, with +43% of respondents anticipating higher prices over the year ahead.
What This Means for Borrowers, Landlords and Developers
At Cator Wells Finance, we’re seeing these same trends reflected in lending appetite across the market:
- Rental supply constraints continue to support strong income fundamentals for landlords
- Regional development opportunities remain strongest outside the South East
- Funding conditions are improving gradually, but lender scrutiny remains high
- Rate movements in the coming months will be a key driver of market momentum
For investors and developers, the combination of stabilising values and rising rental demand may create opportunities — particularly where projects are structured correctly and positioned well to lenders.
Speak to Our Team
If you’re considering a purchase, refinance or development scheme in 2026, our team can help you navigate the changing market and secure the right funding structure.
Get in touch with Cator Wells Finance to discuss your next project.