House prices are set to flatline across Britain until 2028 as high interest rates and tax rise fears dampen buyer demand, Savills has warned.

Average prices adjusted for inflation will not return to growth until 2028, the estate agent said, bringing an end to stagnating values for the first time since 2022 in the wake of the pandemic.

Savills said the housing market continues to bear the brunt of weaker buyer confidence and concerns about the economy and taxation, slowing down demand into early 2026.

Rachel Reeves has said the upcoming Budget will focus on lowering inflation, while warning that “we will all have to contribute” in tackling Britain’s mounting debt pile.

The Chancellor is understood to be considering a raid on income tax, a move which would break a key pledge in Labour’s manifesto.

Lucian Cook, head of residential research at Savills, said: “Our previous forecast assumed falling interest rates would boost borrowing and investment, supporting house price growth. However, with inflation stuck at 3.8pc, economists are less confident about the pace in which rate cuts will happen.

“Higher interest and mortgage rates next year, as well a weaker labour market, with a slight rise in unemployment and slowing wage growth, are likely to constrain price growth.”

Excluding inflation, house prices are expected to grow by 2pc on average in 2026, Savills said – an average increase of £7,200. However, this is half Savills’ previous forecast of 4pc.

House prices will grow by just 1pc this year, with the average standing at £359,875 for the UK.

As well as fears about income tax, homeowners are also bracing for a potential raid on more expensive homes. This could reportedly manifest through a 1pc levy on homes worth more than £2m, or a doubling of the two highest bands of council tax.

Higher-value homes are expected to feel “much greater impact” from the Chancellor’s upcoming Budget than the rest of the market, according to Mr Cook.

House prices in London are not expected to grow at all next year while those in the South East are only expected to inch up by 1pc.

Nonetheless, Mr Cook expects that uncertainty from the Budget will continue “to weigh on the market” as a whole.

Without accounting for the effects of inflation, average house prices are expected to increase by £80,000, or 22.2pc, over the next five years.

The top performing regions are forecast to be Yorkshire and Humber, the North East, Scotland and Wales, with values in each of these areas predicted to grow by at least 27pc over the next five years.

Savills said that beyond 2026, the UK economy is expected to be “materially stronger” on the back of low inflation, rising GDP growth, falling unemployment and an undersupply of new homes.

But before that, transaction levels are expected to fall in 2026, with weaker sentiment holding back transactions.

This is despite housing being “technically more accessible now than at any point in the last three years, thanks to lower mortgage rates, lower real house prices and looser mortgage regulation”, according to Emily Williams, director of research at Savills.

“None of this matters unless buyers feel confident enough to commit,” she said.

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