Why 2026 could be the year the market turns
How policy, land and confidence will shape the recovery
By Tim Foreman, Managing Director of Land and New Homes, LRG
In property sales there are people who need to move and people who want to move. In the last few years, only those who have had to move have been active. Once conditions improve, those who want to move return to the show homes too. That shift creates a positive market: it increases the customer base, keeps chains intact and reduces fall throughs. It does not require a revolution in economics to trigger that change – a further modest reduction in interest rates early next year could be enough to move us over the line. On that basis, I expect to see a noticeably stronger market in early 2026.
From need to want: unleashing demand
If borrowing costs ease following the Bank of England Monetary Policy Committee decision on 18 December and inflation remains under control, discretionary movers will come back into the market. Many are waiting for the final interest rates reduction this year a clearer signal that era of expensive mortgage is far behind us.
Once they return, chains will lengthen, stock will turn more quickly and the market will feel less fragile. That is the moment when policy choices made in 2024 and 2025 will be tested, because the real question is not whether demand will return, but whether supply can keep pace.
Supply, land and the weight of regulation
Today there are enough new homes to meet demand in many areas, but only for the short term. Years of mixed messages about housing, together with layer upon layer of regulation, have slowed development activity. Costs have risen sharply, and so too have requirements such as biodiversity net gain, affordable housing and building safety regulations.
At the start of this process is land values. The cumulative effect of regulation has reduced what developers can afford to pay for land. A landowner with a strong income from their core business will not sell for half of what they were led to expect. If that gap is not lessened, sites will remain in agricultural/commercial use and a shortage of consented, developable land will stall the market.
The recent action taken in London shows that the government understands the problem. Once put into practice, reduced affordable housing requirements, lower Community Infrastructure Levy in some locations and more flexible design standards will begin to unlock stalled schemes. A similar, carefully calibrated approach will be needed elsewhere if ministers are serious about achieving 1.5 million homes this Parliament.
Affordable housing, S106 and confidence
It is not only the level of affordable housing that matters, but the way it is funded. Registered providers are finding it harder to commit to new Section 106 homes due to a lack of funds, and developers are increasingly left with affordable units that have no obvious buyer. We need a realistic conversation about how S106 homes are priced and supported.
At the same time, many households are hesitating because of the wider cost of living. If government wants 2026 to be the year that first time buyers return in force, it will need to address this problem. A refreshed Help to Buy style scheme or a time limited Stamp Duty holiday for first time buyers would certainly help. There is also a case for recycling receipts from earlier Help to Buy loans to support the next generation, who in many areas face tougher deposit hurdles than those to benefited from Help to Buy (2013-2021).
Policy risks and wild cards
The one thing the property market does not need in 2026 is further legislation. Additional regulatory burdens would be a tipping point for many schemes. Policy now needs to focus on removing friction in the system, not adding to it.
New towns will be part of the long term answer if we are to deliver more than 400,000 homes a year, but they will not help meet housing targets in the remaining 3 ½ years of this Parliament. Infrastructure, land assembly and governance mean long lead times. Interim policies that allow central government to call in applications near proposed new towns may even reduce delivery in those areas in the short term.
We should also watch the transition from leasehold to commonhold. From my experience, the existing leasehold system usually works well for flat owners and the more extreme examples of poor practice are not the norm. Commonhold may look attractive in theory, but shared responsibility for major works is difficult to manage in practice. You cannot mend a roof by committee. If the shift is not handled carefully, it could unsettle buyers in an already fragile flats market.
What needs to happen next
If I had to pick one action for 2026, it would be a genuine reduction in the regulatory burden across planning and development, combined with targeted support for first time buyers. That means following through on promises to cut red tape at every stage of the planning cycle, revisiting the cumulative impact of requirements on viability and giving households a reason to believe that now is the right time to move.
Do that, and when demand moves from need to want, the new homes sector will be ready to respond rather than left struggling to catch up.
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