House Price Forecasts
Markets have navigated a complex landscape in the first half of 2025, shaped by early year bond market volatility and ongoing geopolitical uncertainty, particularly around the potential implications of the second Trump administration. However, with a recent softening of US trade rhetoric and a more stable global economic outlook, sentiment has started to shift.
Against this backdrop, the economic position of UK households has improved. Wage growth has outpaced inflation for nearly the past two years and mortgage rates have been steadily falling. These improving fundamentals have led us to revise our national house price forecasts slightly upward.
Growing confidence is beginning to translate into increased buyer activity. Lower mortgage rates alongside changes to affordability tests are making finance more accessible. The Bank of England cut the base rate again last month, the fourth such move since summer 2024, bringing it to 4.25%, its lowest level since 2023. A further two rate cuts are expected before year end, which would provide additional support to the market. However, the outlook remains sensitive to any renewed upward pressure on borrowing costs, unemployment, or inflation, which would likely temper demand and transaction volumes.
Despite these risks, the near-term picture is more encouraging. Regional disparities persist however, with London continuing to trail the national average, largely due to its recent weaker performance and sensitivity to affordability constraints. Still, on balance, market momentum has strengthened, and our updated forecasts reflect a cautiously optimistic view of the year ahead.
Rental Forecasts
The supply-demand imbalance which has in part driven rent rises is now becoming more balanced, with rental growth slowing to its lowest pace in four years. As in our previous outlook, London is expected to underperform the national average. Despite the capital's acute supply shortage, high rents relative to incomes continue to act as a natural cap on further increases, though a catch-up is likely in 2026 as rents stabilise following a period of relative underperformance.
Regulation is also playing an increasingly influential role in shaping the market. Recent tax changes have already contributed to some landlords leaving the sector, and the forthcoming Renters’ Rights Bill could accelerate this trend. The proposed legislation, which is likely to make it harder for landlords to regain possession, introduce tighter rules around rent increases, and increase uncertainty around tenancy duration, may further dampen investment appetite and reduce available supply. If realised, this would put additional upward pressure on rents, despite growing affordability challenges for tenants.
Looking ahead, we expect the market to settle into a more sustainable growth path, with rental increases averaging around 3% per annum over the medium term. While structural undersupply, particularly in London, will continue to support headline growth, affordability constraints are expected to act as a long-term ceiling on further rental uplift.
