House Price Forecasts
2025 has seen a more stable housing market compared with the more turbulent recent years marked by the pandemic and the Truss mini-budget. Transactions peaked at the end of March as buyers rushed to meet the stamp duty deadline, but this soon settled down and transaction returned to an average of C.101,000 a month in 2025, 3% higher than the five-year average. There was some hesitancy in the market around the late Autumn Budget, but the two key changes to the residential market – the introduction of ‘Mansion Tax’ and higher tax on rental income – are expected to mainly impact the super prime and Buy-to-let markets.
House price growth remained positive but slowed throughout 2025 as demand cooled, and it became more of a buyers’ market. There were variations across the country, with more affordable regions achieving higher house price growth compared with areas such as London and the South East.
Looking ahead, we forecast house price growth to remain at sustainable steady levels reflecting softer labour market conditions and the impact of tax freezes on disposable incomes. However, inflation is forecast to return to target and modest rate cuts are anticipated, which should place some upward pressure on house prices. The UK is expected to outperform London where affordability constraints are more acute.
Rental Forecasts
In 2025, the pace of rental growth continued to slow as demand cooled. This was driven by a decline in net migration, an increase in first-time buyers, and affordability pressures that led to more young adults living with parents. The latter deferring underlying demand rather than satisfying it. Nonetheless the UK continues to face a shortage of rental homes, with the RICS residential survey showing landlord instructions in negative territory throughout the year. Positive wage growth saw income continuing to outstrip rental growth, improving affordability, albeit still above recommended levels for many renters.
Despite a cooling in demand, the imbalance between supply and demand remains and is unlikely to improve in the short to medium term. Increased regulations (recent tax changes, MEES, and the Renters Right Act) are likely to continue to push many private landlords out of the market and despite strong investor appetite in the Build to Rent sector, viability issues have and will continue to impact the level of new supply coming forward.
Looking ahead we expect rental growth to continue at a sustainable level. Softer labour market conditions and their impact on wage growth will place downward pressure on rents, while the ongoing shortage of rental homes will place some upward pressure. Similar to the sales market, UK rental growth is expected to outpace London given greater affordability pressures in the capital.
