London Decline Deepens as Mortgage Approvals Fall | UK Property Market Monthly: July 2026

Published: 28 July 2026

Data covering HPI up to May 2026, private rents up to June 2026, and the Bank of England's June MPC decision. Published: 28 July 2026.

In July, the UK property market showed clearer signs of losing momentum. Annual house price growth slowed, while seasonally adjusted prices were flat. London weakened further, recording its tenth consecutive month of annual decline, and the sharp fall in mortgage approvals suggests that higher borrowing costs may weigh on transaction activity in the months ahead.

This month also brought a new source of uncertainty following the change of government and the emergence of proposals affecting property taxation and housing regulation. These measures remain at the discussion stage, but investors should now consider policy risk alongside interest rates, financing costs, rental performance, and currency movements.

At Kens Estate, we publish this monthly report to help investors and buyers understand the changing UK property market through data released by the UK government, the Bank of England, and other public institutions.

Executive summary

Two things dominate this month's report, and only one of them is in the data.

The data itself shows the SDLT base effect unwinding as expected. Annual UK house price growth eased to 2.7% in May from a revised 3.9% in April, with the average property at £271,000. Monthly growth was 0.3% on a non-seasonally adjusted basis but flat at 0.0% seasonally adjusted, which is the cleanest underlying read available and points to a market that has stopped rising rather than one that is accelerating. From the August release onwards, the year-on-year comparisons finally become meaningful again.

The larger development sits outside the statistical releases. Andy Burnham became Prime Minister on 20 July, succeeding Keir Starmer, who resigned in June. For property investors this matters more than a typical leadership change, because the new government has signalled that housing costs sit near the centre of its agenda. Proposals under discussion include replacing both council tax and Stamp Duty Land Tax with an annual proportional property levy, and lowering the threshold for the high-value council tax surcharge. No formal manifesto has been published, so these remain proposals rather than policy, but the direction of travel is a genuine new variable for anyone modelling UK property returns.

Meanwhile the financing picture has deteriorated. Mortgage approvals fell sharply to 56,200 in May, well below the six-month average of 63,300 and down from 65,900 in April. Best fixed rates have risen roughly 70 basis points over three months as markets moved to price rate increases rather than cuts. London recorded its steepest decline of the cycle at −3.7% annually, a tenth consecutive month of negative growth.

Rents held steady. UK average rents reached £1,388 per month in June, with annual growth unchanged at 3.3%. The North East leads at 6.3%, London trails at 2.2%.

Three takeaways for investors this month:

1. Policy risk has become the dominant variable. The proportional property levy proposal, if it were enacted in the form under discussion, would apply an annual charge of roughly 0.48% of property value, doubling to 0.96% for second homes, empty properties, and homes owned by overseas buyers. For a buy-to-let investor or a yen-based overseas purchaser, that is a material change to holding-cost economics. Nothing has been legislated and no timetable exists, so this is a monitoring item rather than a reason to act, but it belongs in every forward model from now on.
2. The financing environment is the clearest negative in this report. Approvals at 56,200 represent the weakest month in over a year, and the best two-year fixed rate at 60% loan-to-value has moved from around 3.63% three months ago to approximately 4.32% now. Rising borrowing costs and falling approvals usually precede softer transaction volumes.
3. Yen-based investors have lost the entry-point improvement of the past two months. GBP/JPY traded near ¥217.6 in late July, up from approximately ¥213 in late June and close to the 180-day high of ¥219.50 reached on 15 July. Sterling is roughly 9.6% stronger against the yen than a year ago.

1. Prices: headline and segment breakdown

The UK House Price Index reached 104.0 in May 2026 (January 2023 = 100), with the average UK property valued at £271,295. Annual inflation eased to 2.7% from a revised 3.9% in April. Prices rose 0.3% on the month on a non-seasonally adjusted basis but were unchanged on a seasonally adjusted basis.

The deceleration is a base effect working in reverse. May 2025 saw a large monthly rise of 1.5% as the market recovered from the April 2025 SDLT cliff edge, so the smaller 0.3% rise this May drags the annual rate down. This is the last month in which base effects meaningfully distort the headline.

Country-level picture

A notable reordering. Scotland at +4.4% and Wales at +4.2% are both now growing roughly twice as fast as England at +2.3%. Scotland has posted two consecutive strong monthly gains (+2.7% in April, +1.5% in May) and its annual rate has climbed from 2.8% to 4.4% in a single release. Northern Ireland continues to lead on quarterly data at +7.4%.

Property type: flats back into decline

Flats have returned to negative territory at −1.3%, after briefly turning positive at +0.3% in April. Over the past four releases the flat segment has read −2.6%, −5.3%, +0.3%, and −1.3%, a range of nearly six percentage points that illustrates how much noise the SDLT distortion introduced. Averaging across the period, flats have underperformed houses by roughly four to five percentage points, and that gap is the durable signal. Semi-detached homes lead at +4.5%.

Buyer and funding status

• First-time buyers: average £228,140, annual change +2.5%
• Former owner-occupiers: £334,690, annual change +2.7%
• Cash purchases: £257,722, annual change +2.4%
• Mortgaged purchases: £280,377, annual change +2.7%

All four categories have converged into a narrow 2.4 to 2.7% band, the tightest dispersion seen in this report series. This convergence is itself a sign that the SDLT distortion is washing out of the data.

New build versus existing stock

The new build premium has widened considerably. New builds are up 5.5% annually while existing stock is flat at 0.0%, a gap of over five percentage points. Investors should note that new build price data carries higher uncertainty because of small recent sample sizes, and that the premium partly reflects the mix of properties being delivered rather than like-for-like appreciation.

2. Regional opportunity map

Three observations matter for allocation.

The North remains ahead, but the gap has narrowed to something plausible. Last month the North East showed +9.9% and this month it shows +5.9%. The lower figure is far more credible as an underlying rate. The North East and North West at +5.9% and +5.8% respectively still lead, and both combine low entry prices (£163,933 and £219,506) with the strongest rent growth in England. That combination of capital and income momentum has now persisted across enough releases, with varying degrees of base-effect distortion, to be treated as a real feature rather than an artefact.

London's decline has deepened rather than stabilised. The −3.7% annual reading is the worst of the current cycle and a marked deterioration from −2.1% last month. The monthly change of −1.2% was the weakest of any UK region. This is now ten consecutive months of annual decline. Because prime London transactions largely sat above the SDLT thresholds that moved in April 2025, the base effects that flattered other regions never applied to London, which makes this weakness harder to dismiss. Kensington and Chelsea remains the most expensive borough at approximately £1.3 million, with Barking and Dagenham the cheapest at £361,000.

The Midlands have given back their lead. The East Midlands at +3.2% and the West Midlands at +2.7% have both slipped below the northern regions and both posted monthly declines. Last month's framing of the Midlands as the most legitimate sustainable growth story looks premature on this data. The Midlands remain reasonably positioned on entry price and yield, but they are no longer outperforming.

3. Rental market: growth holding at a lower plateau

The ONS Price Index of Private Rents shows UK average rents at £1,388 per month in June 2026, up 3.3% year-on-year. The annual growth rate was unchanged from May, suggesting rent inflation has found a plateau rather than continuing to decelerate. With house prices up 2.7% and rents up 3.3%, rent growth is once again running ahead of capital growth, which supports running yields.

Country-level rents (12 months to June 2026)

Wales continues to lead at +4.9%. Scotland remains the weakest at +1.3%, having decelerated from 2.0% two months ago. The combination of Scottish rents growing at 1.3% while Scottish prices grow at 4.4% is compressing Scottish yields noticeably, and is worth watching for investors who were attracted to Scotland on yield grounds.

English regional rent growth

• North East: +6.3% (highest), up slightly from +5.9% in May
• London: +2.2% (lowest), up slightly from +2.0% in May

Both ends of the range have ticked up marginally. The 4.1 percentage point spread between the North East and London remains wide by historical standards.

Rents by property type and size (UK, June 2026)

• Detached: £1,577 per month (highest)
• Flats and maisonettes: £1,355 per month (lowest)
• 4+ bedrooms: £2,061 per month
• 1 bedroom: £1,127 per month

The flat segment continues to present the classic buy-to-let trade-off in sharper form than usual: the lowest average rent in absolute terms and the weakest capital growth, offset by the lowest entry price. Whether that trade-off is attractive depends heavily on the leasehold and service charge position of any specific building.

Indicative gross yields

Simple gross rental yields using country averages (annualised rent divided by average house price) are as follows.

Scotland's headline yield has compressed for a second consecutive month, from 6.6% in May to 6.3% in June and now 6.2%. England, Wales, and Northern Ireland are unchanged. The Scottish compression is a straightforward arithmetic consequence of prices rising faster than rents, and if the trend persists it will erode Scotland's long-standing yield advantage.

These figures are indicative only. Actual investor yields depend on voids, management costs, SDLT surcharges, repair reserves, and location within each country.

4. Transaction volumes and mortgage approvals: a clear warning signal

HMRC's Monthly Property Transactions statistics showed 98,000 seasonally adjusted residential transactions in May 2026, which was 16.6% higher than May 2025 but 2.0% lower than April 2026. The annual comparison is still flattered by the post-SDLT trough of 2025. The sequential decline is the more informative figure.

On a non-seasonally adjusted basis between April and May 2026, transaction volumes rose by 6.0% in England, 13.3% in Scotland, 8.3% in Wales, and 18.0% in Northern Ireland, consistent with normal spring seasonality.

The more significant development is in the forward indicator. The Bank of England's Money and Credit data showed mortgage approvals for house purchase fell to 56,200 in May 2026, well below the six-month average of 63,300 and a sharp drop from 65,900 in April. Approvals are the cleanest leading indicator of completions two to three months ahead, and a fall of this magnitude in a single month is the most negative data point in this month's report.

The RICS May 2026 Residential Market Survey reported that sales market activity indicators remain clearly negative, although some measures are showing signs of stabilisation. For once, the survey sentiment and the hard approvals data point in the same direction, which was not the case in the previous two editions.

Investor read: the divergence between improving survey stabilisation and collapsing approvals is best explained by borrowing costs. Approvals data reflects decisions taken in the weeks before the reporting month, which coincides with the period when fixed mortgage pricing began to rise on hawkish rate expectations. If mortgage pricing stays at current levels, transaction volumes in Q3 are likely to disappoint. Buyers retain and probably strengthen their negotiating position.

5. Policy, monetary, and FX backdrop

A new government with housing at the centre of its agenda

Andy Burnham became the United Kingdom's 59th Prime Minister on 20 July 2026, succeeding Keir Starmer, who announced his resignation on 22 June following a loss of confidence among Labour MPs. Burnham was acclaimed Labour leader on 17 July after receiving nominations from 379 of the party's 403 MPs and standing unopposed. He had returned to Parliament via the Makerfield by-election on 18 June, having previously served as Mayor of Greater Manchester from 2017.

This is the seventh change of Prime Minister in a decade, and for property investors it carries more direct relevance than most. The new administration has indicated that housing and utility costs are early pillars of its programme, and the following proposals have been reported and discussed publicly. None has been legislated, no formal manifesto has been published, and no timetable has been set.

Property taxation. Reports indicate support for replacing both council tax and Stamp Duty Land Tax with an annual proportional property levy, along the lines of a proposal from the campaign group Fairer Share. The version reported would apply an annual charge of approximately 0.48% of a property's current value, with no upper limit, doubling to 0.96% for second homes, empty properties, and homes owned by overseas buyers. On a £300,000 property that implies roughly £1,440 per year at the standard rate and £2,880 at the higher rate.

High-value surcharge. The threshold for the high-value council tax surcharge, due to be collected alongside council tax from April 2028, could be lowered from £2 million to £1.5 million, which would bring an estimated additional 150,000 households into scope.

Supply. Burnham has pledged what he described as the largest programme of council house building since the Second World War, alongside higher-density residential development in towns and a reinstatement of the Manchester leg of HS2. His mayoral record combined infrastructure investment with housing delivery on schemes such as Victoria North and Mayfield.

Regulation. His mayoral tenure saw a 43% rise in landlord fines in Greater Manchester, and in 2023 he wrote to the then Housing Secretary requesting rent control powers. Industry commentators have noted that further intervention on top of the Renters' Rights Act is plausible.

The market response has been mixed rather than uniformly directional. UK housebuilder shares rose as much as 4% on the housing supply agenda. At the same time, disclosed hedge fund short positions of 5% or more in UK-listed companies rose to 27 in the first half of 2026 from five a year earlier, with law firm White & Case attributing part of this to policy uncertainty across energy, utilities, transport, and housebuilding. Gilt yields have risen, which feeds through to swap rates and fixed mortgage pricing. Burnham has reaffirmed support for the existing fiscal rules and has reportedly sought advice from former Bank of England chief economist Andy Haldane, former OBR chair Richard Hughes, and Jim O'Neill.

How to hold this. The arguments run both ways and reasonable investors will weigh them differently. Supporters of the supply agenda point to Greater Manchester house prices rising 63% over the past decade against London's 7%, and argue that infrastructure-led delivery can be replicated nationally. Critics point to the international evidence that rent stabilisation measures without parallel supply increases tend to reduce availability over time, and to the cumulative compliance burden on landlords. On taxation, a proportional levy would reduce transaction friction by removing SDLT, which most economists regard as a distortionary tax, while increasing annual holding costs, particularly for second homes and overseas owners. Which effect dominates for any given investor depends on holding period, leverage, and ownership structure.

For this report's purposes the practical point is narrower. Until legislation appears, no position should be taken on the basis of these proposals. But any model of UK property returns built over a five to ten year horizon now carries a policy variable it did not carry three months ago, and overseas buyers in particular should note that they appear explicitly in the higher-rate band of the levy proposal.

Bank of England

The Monetary Policy Committee held Bank Rate at 3.75% on 18 June 2026 in a 7-2 vote, with Megan Greene and Chief Economist Huw Pill voting to raise to 4.00%. The next decision falls on 30 July 2026, two days after this edition's publication, accompanied by a new Monetary Policy Report.

Market-implied probability of no change at the July meeting stood at approximately 96% in mid-July. However, expectations further out have shifted materially. Renewed hostilities in the Middle East pushed oil prices back up after the mid-June peace deal had brought them down, and as of 22 July markets were pricing two rate increases by March 2027. Economists remain divided. Oxford Economics expects a hold for the rest of 2026 and well into 2027. Deutsche Bank's Sanjay Raja maintains a call for no change this year while noting that the odds of an increase are rising because the energy shock is proving more durable than expected. A Reuters poll showed most economists expecting a hold through 2026 with nearly 40% pricing at least one hike, and 2026 forecasts spanning roughly 3.50% to 4.25%.

On the data, CPI inflation eased to 2.6% in the 12 months to June 2026, down from 2.8% in May and the lowest since March 2025. The largest downward contributions came from transport, particularly motor fuels, alongside clothing and food. Food price inflation fell to 1.7%, the lowest since August 2024. Services inflation, which the MPC watches most closely, was 3.7% in the May data and remains the principal argument of the hawkish dissenters.

The Bank's quantitative tightening programme continues, with holdings of UK government bonds for monetary policy purposes at £522 billion on 17 June, down from a peak of £895 billion.

Mortgage market implications

The financing picture has deteriorated materially since last month's edition. The best two-year fixed rate at 60% loan-to-value has risen from approximately 3.63% three months ago to around 4.32%, an increase of roughly 70 basis points. The average two-year fixed rate across the market is reported at approximately 5.54%. This reverses the improvement noted in the June edition and reflects swap rates repricing for potential increases rather than cuts.

For investors, the practical consequences are twofold. Interest coverage ratio calculations on buy-to-let lending tighten as stress rates rise, reducing maximum loan amounts on a given rental income. And borrowers approaching the end of a fixed deal face materially worse refinancing terms than were available in the spring.

GBP/JPY

Sterling has reversed direction sharply. GBP/JPY traded near ¥217.6 on 27 July 2026, up from approximately ¥213 in late June and close to the 180-day high of ¥219.50 recorded on 15 July. The pair is roughly 9.6% higher than the ¥198.66 recorded on 27 July 2025, and around 36% above its ten-year average.

Two forces are at work. On the sterling side, rising gilt yields and the repricing towards rate increases have supported the pound. On the yen side, the Bank of Japan raised its policy rate to 1.00% on 16 June 2026 in a 7-1 vote, the highest level since 1995, with most analysts expecting at least one further increase towards a 1.00 to 1.25% terminal rate. That yen-positive development has so far been outweighed by the sterling-positive rate repricing.

For yen-denominated investors, the implications are threefold.

• The entry-point improvement of the previous two editions has been fully reversed and then some. New UK acquisitions are more expensive in yen terms than at any point since this report series began.
• Existing GBP holdings have recovered translation gains and then some.
• The pair remains historically elevated. Forecasters at exchangerates.org.uk project a softer path towards approximately ¥212 by late 2026 and ¥208 by late 2027, though such projections carry wide error bars. Investors with a known future GBP requirement may wish to consider whether current levels merit hedging, bearing in mind that GBP/JPY is among the most volatile major pairs because of carry trade dynamics.

6. What to watch in August

• 19 August: UK HPI data for June 2026, the first release with genuinely clean year-on-year comparisons after the SDLT base effect fully clears
• 30 July: Bank of England MPC decision and Monetary Policy Report, including the vote split and any change in forward guidance
• 19 August: ONS CPI data for July 2026
• 19 August: ONS rents and prices bulletin (July data)
• Ongoing: any legislative or Budget signal on the proportional property levy and the high-value surcharge threshold

Key questions for next month's edition are as follows. With base effects finally cleared, what is the genuine underlying rate of UK house price growth? Does the collapse in mortgage approvals feed through to weaker completions, as the lead-lag relationship would suggest? Does the 30 July MPC statement move the market's two-hike pricing in either direction? And does the new government give any firmer signal on the timing and form of property tax reform?

Methodology and sources

Disclaimer

This article is provided for general informational purposes only and does not constitute investment, financial, legal, or tax advice, nor a recommendation or solicitation to buy, sell, lease, or invest in any property, region, or financial product. The information is based on publicly available sources, including official UK government and Bank of England publications, considered reliable at the time of publication. However, data accuracy, completeness, and timeliness cannot be guaranteed. Recent UK HPI and ONS rental figures are provisional and subject to revision. Descriptions of political and policy developments reflect proposals reported in the public domain and should not be taken as predictions of enacted legislation, nor as an endorsement of any political position. Past performance is not a reliable indicator of future results. Property values, rental yields, interest rates, taxation (including Stamp Duty Land Tax and related regimes), and exchange rates can fluctuate significantly. Readers are strongly encouraged to conduct their own due diligence and seek independent professional advice from qualified advisers before making any investment decision.