UK Housing Market Forecast 2025: Key Trends and Insights for Buyers, Sellers, and Investors

1. Steady Growth in House Prices Across the UK

The outlook for house prices in 2025 is cautiously optimistic. After a period of uncertainty, multiple reports predict growth, albeit at modest levels:

• Rightmove forecasts a 4% rise in average asking prices, reflecting greater buyer confidence and improving affordability due to expected cuts in mortgage rates.

• Savills also predicts 4% price growth, citing falling inflation and steady interest rate reductions as key drivers.

• Zoopla offers a slightly more conservative figure of 2.5%, with affordability constraints still a factor, particularly in southern England.

• Knight Frank forecasts a 2.5% rise, while the OBR expects growth of 1.1% as mortgage rates remain a challenge for some households.

The consensus is clear: 2025 will see upward momentum in house prices, underpinned by improving economic conditions and a more competitive mortgage market.

2. London: Signs of Resurgence

London’s property market, which has lagged behind the rest of the UK in recent years, is showing signs of a turning point. Several factors are contributing to this:

• Increased international interest and the return of workers to office-based roles are driving demand in the capital.

• Rightmove and Savills expect London’s price growth to match or slightly exceed national averages, projecting 2-4% growth for 2025.

• Prime Central London (PCL), which has seen prices stagnate since 2015, is forecast to recover more gradually. Knight Frank predicts a 2% rise in PCL values next year, but cumulative growth of 21.6% by 2029 as global wealth creation accelerates.

However, affordability remains a challenge for many buyers in London, particularly as the capital’s prices are already stretched relative to incomes.

3. Mortgage Rates: Gradual Decline but No Return to Ultra-Lows

Mortgage rates are expected to continue edging down in 2025, providing some much-needed relief for buyers and homeowners:

• The Bank of England’s base rate is forecast to drop from its current level of 4.75% to around 4% by late 2025.

• Fixed mortgage rates are likely to hover around 4.0% to 4.5% for two- and five-year deals, significantly below 2023 peaks but well above pre-pandemic lows.

• This gradual decline will improve affordability, particularly for first-time buyers and those remortgaging from post-mini-Budget deals in 2022.

However, geopolitical uncertainties, inflationary pressures, and lender caution could cause short-term fluctuations, so buyers will need to remain agile.

4. Stamp Duty Changes: A Busy Start to 2025

From 1st April 2025, stamp duty rates are set to rise, which will impact transaction costs for many buyers. This change is already driving increased activity in early 2025 as buyers look to complete purchases before the deadline.

• Rightmove notes a significant increase in first-time buyer activity, particularly in regions where properties fall below the stamp duty-free threshold of £300,000.

• In London, where fewer properties qualify for this exemption, buyers and sellers are likely to negotiate more keenly on price to offset higher costs.

5. Rental Market: Sustained Demand and Rising Rents

The rental market remains under significant pressure due to supply constraints and legislative changes:

• Knight Frank forecasts rental growth of 3.5% in Prime Central and Outer London next year, reflecting continued demand from tenants and uncertainty surrounding the Renters’ Reform Bill.

• Mainstream rental values across the UK are expected to rise by 3-4%, driven by a lack of supply and slowing wage growth impacting tenant affordability.

For landlords, 2025 will be a year to watch, as policy changes and cost pressures continue to reshape the buy-to-let landscape.

6. Prime Central London: A Unique Landscape

The Prime Central London (PCL) market operates distinctly within the broader London and UK property context. Key factors shaping this segment in 2025 include:

• Global Wealth Creation: PCL is expected to benefit from increasing global wealth, driving demand from international buyers.

• Relative Value: With prices still 18% below their 2015 peak, PCL offers perceived value for high-net-worth individuals compared to other global cities.

• Policy Impacts: Adjustments to taxation on overseas buyers and higher stamp duty on second homes may temper short-term growth, but long-term demand remains robust.

• Cumulative Growth: Knight Frank predicts a cumulative price growth of 21.6% by 2029, supported by the enduring appeal of London’s prime postcodes for both investors and lifestyle buyers.

As always, the PCL market’s resilience is tied to its unique buyer base, including cash-rich investors and buyers driven by prestige and lifestyle aspirations.

7. Regional Variations: Beyond London

While London is set for a resurgence, regional markets are also expected to see steady price growth. Key predictions include:

• The North West and Yorkshire are forecast to lead price growth, with cumulative increases of 28-29% by 2029 (Savills).

• More affordable regions such as the North East and Scotland will see strong demand, particularly among first-time buyers and investors seeking better yields.

• Southern England, including the South East and South West, will see more modest gains due to affordability constraints.

What Does This Mean for You?

The outlook for 2025 presents both opportunities and challenges for buyers, sellers, and investors:

• Buyers can expect greater affordability as mortgage rates decline, but competition will increase, particularly in early 2025.

• Sellers will need to remain realistic on pricing, as buyers continue to hold the upper hand in a supply-rich market.

• Investors should keep an eye on London’s resurgence and rental market dynamics, particularly in light of legislative changes.

While short-term fluctuations are inevitable, the longer-term trends point to steady growth underpinned by improving economic conditions and renewed confidence in the UK housing market.

Are you preparing to buy, sell, or invest in 2025? Let’s connect and discuss how to navigate these trends and opportunities effectively.

Sources: Rightmove, Savills, Knight Frank, Zoopla, CBRE, Chestertons, OBR.