After several years in which the UK housing market has been defined by uncertainty, stretched affordability and cautious buyer behaviour, the picture now appears more balanced than many recent headlines imply. Higher mortgage rates have undoubtedly cooled demand, and many households remain careful about committing to a purchase while the cost of borrowing is still elevated. Yet beneath those immediate pressures, the longer-term outlook for house prices looks steadier, supported by one of the most persistent features of the British property market: there are still too few homes for the number of people who want them.

This shortage is central to the more optimistic forecasts now being made for the market. S&P Global Ratings, one of the world’s largest credit ratings agencies, expects the UK to be among Europe’s stronger housing markets over the coming years. Its view is not that Britain is heading into another rapid boom, but rather that limited supply, a gradual improvement in affordability and the possibility of more favourable borrowing conditions could allow prices to keep moving upward at a measured pace. That distinction matters. A sustainable recovery would be more valuable to homeowners and buyers than a short-lived surge, because it would allow household balance sheets to strengthen without creating the same level of overheating seen in previous cycles.

The current market still faces obvious constraints. Mortgage affordability remains one of the biggest tests for buyers, particularly first-time buyers and households moving up the ladder. Many borrowers coming off cheaper fixed-rate deals have also had to adjust to higher monthly repayments, which has reduced disposable income and made lenders’ affordability checks more demanding. Transaction levels have been affected as a result, with some potential movers delaying decisions until rates become clearer. Even so, the absence of widespread forced selling, resilient employment and continued demand for well-located homes have helped prevent a sharper correction in values.

Supply is the other side of the equation, and it is the area where the UK’s difficulties are most entrenched. Although the government has introduced planning reforms intended to accelerate housing delivery, S&P has cautioned that it will take time before these changes produce a meaningful increase in the number of homes being built. The Planning and Infrastructure Act 2025 and reforms to the National Planning Policy Framework may eventually support development, but the effect is unlikely to be immediate. According to the information cited in the agency’s outlook, housing starts in the first quarter of 2026 remained around 30% below the peak recorded in the second quarter of 2023. That gap highlights why supply cannot quickly respond to demand, even when policy begins moving in a more pro-building direction.

Against that background, S&P is forecasting UK house price growth of 2.0% in 2026, 2.6% in 2027 and 3.7% in 2028. These numbers suggest gradual improvement rather than a dramatic acceleration. For homeowners, however, even moderate annual growth can be significant over time. A property that rises steadily in value while the mortgage balance is being paid down allows the owner to build equity from two directions at once. The home becomes worth more, and the debt secured against it becomes smaller. That growing equity can make a practical difference when the time comes to remortgage.

Equity is particularly important because lenders often price mortgage products according to loan-to-value bands. A borrower with a high loan-to-value mortgage usually has fewer options and may pay a higher rate, because the lender is taking on more risk. As house prices rise and the outstanding mortgage balance falls, the borrower may move into a lower loan-to-value bracket. That can improve their chances of accessing more competitive remortgage deals, provided their income and credit profile remain strong. In this sense, a healthier housing market does not only benefit sellers or investors; it can also support existing homeowners who simply want to manage their monthly payments more effectively.

The link between house price growth and remortgaging could become increasingly relevant over the next few years. Many homeowners still need to refinance after leaving older fixed-rate deals that were arranged when borrowing costs were much lower. If prices remain stable or rise modestly, those borrowers may approach lenders with a stronger equity position than they would have had in a flat or falling market. That does not remove the pressure caused by higher interest rates, but it can soften the impact. A borrower who has gained equity may have more products available, more room to negotiate and a better chance of avoiding the most expensive rates.

Britain’s housing shortage is not unusual in a European context. S&P’s wider European housing outlook points to weak construction across much of the continent, with too few homes being built to relieve price pressure. Germany faces obstacles including labour shortages, limited development land and complex planning procedures, while construction activity in France has fallen sharply. Spain, the Netherlands and several other countries are also trying to boost delivery through policy changes, but the agency expects any meaningful supply improvement to take time. This broader European pattern helps explain why prices can remain supported even when households are dealing with higher rates and affordability challenges.

For the UK specifically, mortgage affordability remains the key variable that could determine how strong the next phase of the market becomes. S&P describes Britain as one of Europe’s most rate-sensitive housing markets, which means changes in borrowing costs can have an outsized effect on demand and prices. If mortgage rates fall meaningfully, buyers who have been waiting on the sidelines may return more quickly, and homeowners who delayed moving may regain confidence. Lower borrowing costs would not solve the supply shortage, but they could increase purchasing power and support stronger price growth.

The agency’s baseline forecast assumes that the Bank of England raises rates once in 2026 rather than continuing to cut them, so the outlook is not built on an assumption of easy money returning. However, S&P also modelled a more favourable scenario involving lower inflation, lower long-term interest rates and slightly stronger employment. Under those conditions, the UK would see one of the biggest uplifts in house prices among the markets analysed, ranking second only to Germany for potential upside and ahead of France, the Netherlands and other major European markets. For homeowners, that scenario would likely mean faster equity growth, while for buyers and investors it would reinforce the importance of timing, affordability and location.

The near-term future is therefore likely to remain uneven. Some buyers will still struggle with deposit requirements and mortgage affordability, while some sellers may need to price realistically to attract interest. Regional differences will also matter, because local wages, employment prospects, housing stock and transport links all influence demand. Yet the later outlook appears more constructive. If supply remains constrained, employment stays broadly resilient and borrowing conditions gradually improve, house prices could continue rising at a moderate pace. That would not necessarily create a market that feels easy for buyers, but it would support the wealth position of many existing homeowners.

Ultimately, the success of the UK housing market over the next few years may be judged less by whether prices surge and more by whether the market can deliver stability, confidence and gradual value growth. A steady upward trajectory would help homeowners build equity, strengthen their remortgage prospects and provide a buffer against financial shocks. At the same time, it would underline the continuing need for more housing supply if affordability is to improve in a meaningful way. The market is not without risks, but the combination of persistent undersupply and the possibility of better mortgage conditions suggests that the UK housing market may be better placed for the future than the current mood sometimes suggests.