House Price Forecasts
As 2024 draws to an end, the housing market has shown signs of gaining momentum, with house price growth picking up pace in recent months and transaction activity rising. This year’s growth exceeded expectations, prompting us to revise our forecasts from 2025 to reflect these positive developments.Looking ahead, pent-up buyer demand, accumulated during the slower market conditions of 2023 and early 2024, is set to drive a more pronounced recovery in house price growth in 2025 and 2026, especially as we expect interest rates to fall back to a relative low in 2026. That said, regional disparities will persist, with London expected to underperform the wider UK market. This is due to London’s weaker recent performance and its heightened exposure to affordability challenges.
However, as we move into the latter part of the decade, house price growth is projected to slow. By 2027 and 2028, affordability pressures are likely to remain a significant barrier for many households, compounded by forecasts of lower wage and disposable income growth.
The housing market is also expected to face additional headwinds as the next General Election approaches, with uncertainty around political outcomes further tempering growth toward the end of our forecast period.
Rental Forecasts
The pace of rental growth has notably slowed, with London experiencing a particularly significant deceleration. This shift reflects a gradual rebalancing of the supply-demand dynamics that had been driving sharp rent increases in recent years. However, with limited new
stock entering the market, rental growth is expected to continue outpacing wage growth and inflation over the next five years.
Regionally, the UK market still has some capacity for upward pressure on rents. In contrast, London’s rental growth is increasingly constrained by affordability challenges, with less headroom for further increases. Slowing wage growth is set to exacerbate affordability issues for tenants nationwide, potentially impacting demand.
Overall, the market is expected to move towards a more sustainable growth rate of around 3%. London’s acute shortage of rental stock will persist, but affordability concerns will act as a limiting factor, causing rent growth in the capital to align more closely with the UK average.
