The UK property market is set for notable changes in 2025, driven by shifting economic conditions, interest rate adjustments, and evolving rental and sales trends. This article explores key forecasts for inflation, GDP growth, rental prices, house prices, and sales volumes, offering insights into what buyers, investors, and tenants can expect in the coming years.
Inflation is projected to stay slightly above the Bank of England’s target throughout 2025, with a rise expected toward the year’s end due to increasing energy prices. As a result, three base rate cuts are anticipated, which, along with increased government spending, should contribute to GDP growth. The UK economy is expected to expand at an annual rate of 2.1% by Q4 2025.
Real incomes grew by 2.2% in 2024, boosting consumer confidence to a three-year high before declining after the Budget. However, continued income growth is expected to support household spending and GDP growth, which will, in turn, benefit the housing market. Falling mortgage rates should improve buyer affordability and drive house price growth, while rental prices are likely to remain robust, supported by stable demand.
In 2024, UK rents on all tenancies rose by 9.0%, with London experiencing a 11.5% increase. However, new tenancies saw slower growth, with UK rents rising 1.3% and London rents declining by 2.6%.
Supply constraints will persist as landlords exit the market due to rising costs and regulatory changes. Although Build-to-Rent developments are expanding, they won’t fully bridge the supply gap. Despite this undersupply, tenant affordability remains stretched, particularly in London. Lower inflation and affordability constraints will slow rent growth in 2025:
UK rental growth forecast: 3.0% in 2025, averaging 2.7% per year through 2029.
London rental growth forecast: 4.0% in 2025, averaging 2.8% per year through 2029.
Lower inflation and improving real wages should ease affordability pressures, supporting rental demand in the longer term.
Sales activity improved in 2024, with 1.09 million transactions, marking a 7% increase from 2023. However, London’s new home sales hit their lowest levels since 2009. The economic recovery, lower mortgage rates, and landlords selling properties should support further sales in 2025, with volumes expected to grow by 4% to 1.14 million transactions.
Housing supply remains a challenge due to low construction rates and the lack of government incentives for first-time buyers. Although a gradual increase in housebuilding is expected, sales volumes are unlikely to return to pre-pandemic levels until 2029, when they are projected to reach around 1.2 million transactions per year.
UK house prices increased by 4.6% in 2024, but regional disparities remain:
Northern Ireland: 9.0% growth
Scotland: 6.9% growth
North East: 6.7% growth
London: Flat growth
Affordability improvements through real wage growth and lower mortgage rates should support house price growth across the UK. However, price increases will vary by region, reflecting local affordability levels.
UK house price growth forecast: 3.4% in 2025, with total growth of 19.3% between 2025–2029 (average 3.6% per year).
London house price growth forecast: 2.5% in 2025, with total growth of 20.3% between 2025–2029 (average 3.8% per year).
New regulations are shaping the housing market:
Stamp Duty Land Tax (SDLT) Surcharge: Increased from 3% to 5% for second homes, discouraging new buy-to-let investments.
Energy Efficiency Standards: Stricter rules for private rented homes may lead to further reductions in rental supply.
Surveys show that over two-thirds of potential property investors have reconsidered their purchases, and 46% of landlords intend to sell part of their portfolios, potentially removing more rental stock from the market. Despite supply constraints, affordability pressures will moderate rent growth, particularly in London.
Falling mortgage rates and real wage growth should support buyer confidence and house price appreciation.
Rental demand will remain strong, though affordability constraints will temper growth.
Government policies and economic conditions will continue to shape the housing market’s trajectory.
New home sales in London are expected to remain low, with recovery beginning in 2026.
While the housing market faces challenges, improving affordability and economic stability should provide a broadly supportive backdrop for both buyers and renters in the years ahead.
All information in this article is sourced from CBRE’s UK Residential Forecasts Q1 2025 report.
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