Is the UK housing market turning a corner?

The weeks after the November Budget brought a sense of relief – no more speculation over changes to taxation. What changes there were weren't quite as bad as people had feared. Long-term government borrowing costs stabilised as the Chancellor reinforced the public purse, paving the way for mortgage rates to continue easing.

The house price indexes for December showed continuing softness – Halifax and Nationwide posted respective monthly declines of 0.6% and 0.4%. Metrics of buyer demand and agreed sales in December's RICS Residential Market Survey, out yesterday, remained weak, although they were a little less negative than November's readings.

But sentiment is unquestionably shifting. Near-term sales expectations in the RICS survey surged to a new balance of +22%, the most upbeat reading since October 2024. The twelve-month outlook strengthened to +34%, also the strongest since the end of 2024. 

Jostling for position

Conditions in the mortgage market will be key to any sustained recovery. The larger lenders have been jostling for position during the past fortnight; Barclays, Nationwide and HSBC have all cut rates, though Santander still holds the cheapest fixed rates at just a shade above 3.5%.

The Bank of England’s Credit Conditions Survey, conducted in the weeks leading up to the Budget and released this week, showed that lenders expected mortgage availability to improve over the three months to February. That's despite pre-Budget expectations of a decline in demand over the same period. 

Berkeley Group executive chairman Rob Perrins spoke to Knight Frank’s Tom Bill on a new episode of Housing Unpacked, where he pointed to tentative signs of a recovery emerging: "We've had a very good couple of weeks, which is very unusual," he said. "Normally you have to wait until week three."

Quick to forgive

Tom’s expansive interview with Perrins charts his journey from joining Berkeley working alongside founder Tony Pidgley, who was quick to forgive a £10 million mistake if the reasoning was sound, but far less tolerant of smaller losses driven by illogical decisions.

The Chancellor visited a Berkeley site in the run up to the Budget, where Perrins made one request: don't change property taxes unless you can reduce them. "My worry was that bringing in a progressive housing tax would cause more uncertainty than leaving stamp duty where it was.... when you're in a crisis and you really want to increase housing quickly, then you have to reduce stamp duty, but only do that if you can afford the reduction."

The government opted not to heed the industry’s warnings and announced plans for a Mansion Tax on homes worth more than £2 million (see Wednesday’s note for the latest). For Perrins, the signal sent by constant shifts in tax policy is often more damaging than the levies themselves:

"People worry about the uncertainty that will change tomorrow... it's the continual increases in new taxes coming in," he says. "We build £200,000 up to £20m homes, and if you tax the top half and the pricing comes back then we have less cross subsidy to build affordable homes. There's never a free lunch." 

There is lot's more insight in the pod, which you can find here, or wherever you get your podcasts.

AI demand

Knight Frank’s 2026 data centre outlook offers a clear view of the unprecedented growth in one of real estate’s hottest markets.

Across the globe, 33GW of new capacity is to be delivered to market, representing a compound annual growth rate (CAGR) of 24.6% over the next two years. 63% of this growth will be located on the North American continent, with Ashburn – nicknamed “Data Centre Alley” – being the key target market for near-term deployment, where 3.5GW is expected to launch during 2026 and 2027. 

Europe will follow its existing trajectory, expanding at a CAGR of 17.8% over the forecast period, with a key theme being the continued divergence of capacity away from traditional core metropolitan areas as AI demand takes its foothold in Europe. The Middle East will see the most dramatic growth over the coming two years, with an annual growth rate of 62.5%, driven by the first phase energisations of multiple gigawatt-scale campuses across Saudi Arabia and the UAE. Whilst the APAC region will see renewed hyperscale interest following the rescinding of temporary international roadblocks, such as the previous AI Diffusion Framework.

Growth will not be without its challenges, writes Stephen Beard, Knight Frank's global head of data centres development and investment. High initial development costs for AI-ready facilities will strain liquidity and require sophisticated financing structures. Single-asset transactions remain illiquid, and investors face pressure to manage capital efficiently while mitigating tenant credit risk, especially with newer neo-cloud providers lacking long credit histories. Furthermore, rapid technological evolution raises concerns about adaptability should tenants vacate. Facilities with lower redundancy or limited flexibility risk becoming stranded assets. Additionally, aspirational announcements – 14GW in MENA – could lead to oversupply versus realistic demand – c.5GW – creating volatility and potential underutilisation. See the report for more. 

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