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House price growth in the United Kingdom is expected to moderate over the next three years, according to a Reuters poll of housing analysts, as expectations of interest rate cuts by the Bank of England have weakened amid geopolitical tensions and rising inflation risks. The survey indicates average home prices will increase by 2.5% this year and 3% annually over the following two years, lower than earlier projections. Mortgage rates have risen in response to global economic uncertainty, impacting buyer sentiment and affordability. London is expected to see relatively subdued price growth compared to other regions. At the same time, rental values are projected to grow at a faster pace than property prices, driven by constrained supply and policy changes affecting landlords in the private rental market.
House price growth across the United Kingdom is expected to slow over the coming years as elevated borrowing costs and reduced expectations of interest rate cuts weigh on demand, according to a Reuters poll conducted over the past few weeks among housing market analysts, reflecting shifting monetary policy outlooks linked to global economic developments. Advertisement
The survey of 17 analysts indicated that average residential property prices are likely to increase by 2.5% this year, followed by annual growth of around 3% over the next two years. These projections mark a downward revision from estimates compiled late last year, when stronger growth had been anticipated.
The change in outlook is linked to expectations that the Bank of England may maintain higher interest rates for a longer period than previously expected. Analysts indicated that geopolitical tensions, particularly the conflict involving Iran, have contributed to rising energy prices and inflationary pressures, limiting the scope for near-term monetary easing. Mortgage lenders have responded by increasing borrowing costs, affecting affordability for prospective buyers.
Market participants suggested that the central bank faces a complex policy environment, where inflation risks could outweigh the need to stimulate housing demand through rate reductions. This shift has led to a recalibration of price growth forecasts, particularly in high-value markets.
London, which typically attracts a significant share of international investment, is expected to record more subdued price growth compared to national averages. Analysts forecast price increases of around 1% this year, followed by 2% next year and approximately 2.8% in the subsequent period, indicating relatively restrained momentum in the capital's residential market.
While capital values are expected to rise modestly, rental markets are projected to show stronger growth. Urban rents are forecast to increase by more than 3% annually over the near term, supported by structural supply constraints and evolving tenant demand patterns. Industry participants indicated that although demand has moderated compared to previous years, supply limitations remain the dominant factor influencing rental growth.
Several factors have contributed to softer rental demand, including a higher number of renters transitioning into homeownership, a decline in student numbers, and more young adults remaining in family homes for longer durations. However, stakeholders emphasised that the availability of rental housing continues to lag demand.
Policy developments are also influencing market dynamics. The Renters Rights Act, which aims to enhance tenant protections, has been cited by industry respondents as a potential deterrent for landlords, potentially restricting new supply in the rental segment.
Despite the pressure from higher mortgage rates, a majority of analysts surveyed indicated that affordability for first-time buyers could improve over time. Slower price growth combined with relatively stable income levels and competitive mortgage offerings may ease entry barriers, although saving for deposits remains a challenge.
Data from market sources indicates that the average asking price for a first-time buyer property stands at approximately GBP 226,995, underscoring the financial constraints faced by new entrants.
Overall, the UK housing market is expected to see moderate price growth alongside stronger rental trends, shaped by a combination of monetary policy conditions, supply constraints, and evolving demand patterns.
Source - Reuters
5th Jun, 2025
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