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A recent survey of housing analysts indicates that UK home price growth is expected to slow compared to earlier projections, as expectations of interest rate cuts weaken due to rising inflation risks linked to geopolitical tensions. Average prices are now forecast to increase moderately over the next few years, while mortgage rates have already risen. Demand remains relatively subdued, particularly in London, and rental growth is projected to outpace property price increases. Despite affordability challenges, a majority of respondents believe conditions for first-time buyers may gradually improve.
A recent Reuters poll of housing analysts suggests that UK home price growth will be more gradual than previously anticipated, as expectations of interest rate cuts have weakened following geopolitical developments and their impact on inflation. Advertisement
According to the survey of 17 analysts, average home prices are expected to increase by about 2.5% this year and by around 3% in each of the next two years. This marks a downward revision compared to an earlier poll conducted in December, which had projected higher growth for the same period. Some analysts have also adjusted their individual forecasts, reflecting a more cautious outlook on both inflation and borrowing costs.
Market participants have noted that the Bank of England faces a challenging environment, with inflationary pressures influencing the possibility of future policy decisions. One industry expert highlighted that interest rates may need to rise rather than fall, pointing to the inflationary impact linked to ongoing geopolitical tensions. Mortgage rates have already increased significantly since the recent escalation in global conflicts, adding further pressure on affordability.
Demand in the housing market remains relatively muted. In London, which typically attracts strong interest from overseas buyers, prices are expected to grow at a slower pace compared to the national average. Forecasts suggest modest increases over the coming years, indicating limited short-term momentum in the capital's property market.
At the same time, rental prices are projected to grow at a faster rate than home prices. Urban rents are expected to rise by over 3% this year and continue at a similar pace in the following year. Industry observers have indicated that rental growth, after a period of softening in the previous year, is likely to pick up again, largely in line with or slightly above broader inflation trends.
Supply-side constraints continue to influence the rental market. Analysts have pointed out that while demand has cooled compared to previous years partly due to more renters transitioning to homeownership, fewer students in the market, and a trend of younger adults living with parents for longer the limited availability of rental properties remains a key factor shaping price movements. Regulatory changes aimed at reforming the private rental sector have also been cited as a potential factor affecting landlord participation, which may further constrain supply.
On monetary policy, expectations among economists suggest that the Bank of England may wait until April or June to consider another reduction in interest rates. Many earlier projections for near-term cuts have been revised due to rising energy costs and associated inflation risks.
Affordability for first-time buyers remains a central concern. A majority of survey respondents indicated that conditions may improve despite the likelihood of higher mortgage costs compared to earlier expectations. However, saving for deposits continues to be a significant challenge. The average asking price for properties targeted at first-time buyers is around USD 303,243, and accumulating a typical 10% deposit remains difficult for many households.
Some analysts believe that a combination of more competitive mortgage products and slower price growth could gradually improve accessibility for new buyers, even as overall market conditions remain cautious.
Source Reuters
5th Jun, 2025
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