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Next year, this would bring the average house price to £300,000, or around a £10,000 increase on current levels.

Estate agency Hamptons's near-term forecasts have remained unchanged, but the longer-term view has been downgraded due to high interest rates and the tax landscape.

Regionally, London is expected to be the winner in 2025, outperforming other regions for the first time in around a decade. Hamptons forecast a 4% annual house price growth in London in 2025.

Meanwhile rental prices are expected to outpace the rate of inflation, with increases of 4.5% in 2025 and 4% in 2026 and 2027.

Between now and the end of 2027, Hamptons rents to rise by 17.0% across Great Britain, outpacing house price growth of 12.5%.

Rental price growth for 2024 is expected to hit £1,401, with a further uptick of £1,464 in 2025 and an increase of £1,523 in 2026.

Read more: How estate agents decide how much your home is worth

The housing market has been in focus for the past few weeks as the Labour government delivered its first budget and the Bank of England's monetary policy committee cut its key interest rate to 4.75% on Thursday.

"As the end of 2024 approaches, the mood of the housing market has shifted from trepidation to cautious optimism," said Aneisha Beveridge, head of research at Hamptons. "Lower mortgage rates have been the principal catalyst for change, falling more rapidly than we expected."

The average rate on a five-year fixed rate deal at 75% loan-to-value dropped from 5.2% in September 2023 to 4.1% in September 2024. Strong income growth has also helped lessen some of the pressures brought about by the cost of living crisis.

Read more: What does an interest rate cut mean for mortgages?

Despite this positive trend, the recovery is not uniform across all sectors, added Hamptons. The prime markets have been more cautious due to speculation about budget changes to capital gains, inheritance tax, stamp duty and non-dom status.

By the end of 2024, the average value of a home in Britain is forecast to be 3.5% higher than in the final quarter of 2023, outperforming our prediction last year of no change. This over-performance is attributed to a faster-than-anticipated decrease in mortgage costs as inflation fell more quickly than expected.

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Lucy Harley-McKeown

Mon 11 November 2024 at 2:01 am EET

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While the UK housing market has seen a number of positive changes so far this year, from a return to price growth and rebounding activity levels, to mortgage rates that are already almost 1 percentage point cheaper than last year, there is more to come in 2025.

This has led to MPowered Mortgages predicting a much faster acceleration in UK house prices, which have risen by an average of 2.8% over the past year, according to the Office National Statistics figures from August.

Although he doesn’t put an exact figure on it, Peter Stimson of MPowered Mortgages says that falling mortgage rates in particular will see buyers and investors (as well as those remortgaging) being able to borrow, in some cases, significantly more, which will likely push up UK house prices at a faster rate than we have seen over the past 12 months.

Earnings have also been on the up in recent months, while inflation has fallen back down to be more in line with the government’s 2% target. This means average households may begin to feel the pinch less, and an improving mortgage market could be the final push towards making an investment.

Stimson said: “Wages have grown by around 14 per cent in the last two years, according to the ONS, while house prices have seen little change.

“House prices are largely a function of mortgage affordability and what has stopped them growing over the last two years is a combination of high interest rates and lenders’ mortgage affordability stress test calculations.”

Better borrowing outlook

Overall, mortgage rates have reduced over the course of this year, despite a temporary uptick in the summer. According to Rightmove’s latest Mortgage Tracker, the average five-year mortgage rate is now 4.64%, which is down from 5.39% this time last year. For a two-year fixed, interest rates are now averaging 4.94%, compared with 5.85% last year.

According to Which?, the average buy-to-let mortgage is now 5.25%, down from 5.96% recorded two years ago. While it is still well above the 3.15% recorded five years ago, it means landlords are already able to find much cheaper deals – with predictions that these rates will only improve over the coming year.

Investment bank Goldman Sachs has put out an ambitious prediction of the Bank of England cutting its base rate to 2.75% by the end of next year, while other analysts have suggested it will come down to 3.5% from its current level of 5%.

Looking at how this could affect mortgage rates – and as a knock-on effect, UK house prices – MPowered Mortgages predicts this could mean borrowers will be able to borrow up to 18% more than they can now. Lenders may relax their “stress testing” affordability checks, says the broker, because standard variable rates (SVRs) will go down, boosting borrowing power.

Stimson points out that people who can currently borrow up to £200,000 may be able to borrow £236,000 next year, and this could be a real boost to UK house prices and the market.

“Lenders base their affordability not on the rate of interest the borrower will pay on their mortgage, but on a rate on rate of interest they “could” pay in the future,” he said.

“They will check the borrower could still afford their monthly repayments, plus all other necessary budgeted expenditure, if mortgage rates were to increase to this amount.

“As base rate drops, so will SVRs and hence the stress rate calculation with it.”

UK house prices could benefit property investors

Signs of strength returning to the property market and rising UK house prices can provide added ammunition for investors looking at a time to enter the market, or to expand their existing portfolios. While the buy-to-let landscape has been affected by tax changes and new regulations, the market fundamentals continue to attract people to invest.

According to Rob Dix, co-founder of Property Hub, 2025 could be a more positive year for landlords too, and not just because of UK house price rises.

With an ongoing shortage of supply in many areas for the rental market, rents are continuing to be pushed up, with data from HomeLet showing the average rent has increased by 40% since June 2020. Gross rental yields have also increased, and finding a top-yielding property and location has been high on the agenda for property investors as growth in UK house prices has slowed.

Dix said: “A property boom would have sounded ridiculous a couple of years ago, but it’s seeming increasingly possible.”

“The sector has had everything thrown at it – fast-rising interest rates, new legislation, rumours around tax treatment – and prices are still barely below their 2022 peak.

“Importantly, in inflation-adjusted terms, prices have actually fallen by more than 15 per cent.

“As rents have risen fast, this has improved yields for investors and made investing in many areas more attractive than it has been for a long time.’

“Sentiment among the investors we speak to is also noticeably better than it has been for a long time.”

While acknowledging that this could change if, for example, the situation in the job market changes, as things stand there is potential for a significant rise in UK house prices in 2025.

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By Eleanor Harvey‍

Published 27th October, 2024

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Hamptons predicts that house prices will rise by 3% across Great Britain in 2025, followed by 3.5% in 2026 and 2.5% in 2027 as the affordability picture improves.

Hamptons says 2025 will mark the beginning of a "new property market cycle", however, it has downgraded longer-term growth due to high interest rates and taxes bearing down on the market.

The estate agent expects London to start outperforming other regions for the first time since 2015 with 4% annual price growth in 2025.

2024

The housing market turned a corner in 2024, with house price growth reversing the declines of 2023. This rebound was primarily driven by lower mortgage rates, which have fallen faster than expected.

By August 2024, the Office for National Statistics index, from which Hamptons forecasts, showed a year-on-year rise of 2.3% across Great Britain, with the average price hitting a new high. The South continues to lag behind the North of England in this recovery.

Improved affordability due to falling mortgage rates has been the key factor. The average rate on a five-year fixed rate deal at 75% LTV dropped from 5.2% in September 2023 to 4.1% in September 2024. Strong income growth has also helped lessen some of the pressures brought about by the cost of living crisis.

Despite this positive trend, the recovery is not uniform across all sectors. The prime markets have been more cautious due to speculation about Budget changes to capital gains, inheritance tax, stamp duty and non-dom status.

By the end of 2024, the average value of a home in Great Britain is forecast to be 3.5% higher than in the final quarter of 2023, outperforming Hamptons' prediction last year of no change. This overperformance is attributed to a faster-than-anticipated decrease in mortgage costs as inflation fell more quickly than expected.

2025

The forecast for 2025 remains unchanged with 3.0% price growth across Great Britain, supported by the continuing downward trend in interest rates. This is expected to boost both prices and sales, with the average house price in Great Britain reaching £300,000 by the end of 2025, about £10,000 above its current level. By the end of next year, prices in every region should have recovered to their 2022 pre-mini Budget peaks.

The base rate is likely to reach around 3.75% by the end of next year. While these cuts have already been priced into mortgages, fierce competition among lenders should reduce borrowing costs for households seeking higher LTV borrowing and niche lending. This should particularly help first-time buyers and upsizing households who typically require larger loans. However, mortgage rates for those with more equity are unlikely to fall much more. Furthermore, a stamp duty rise from April 2025 and a weak economic backdrop will temper price growth.

2025 is anticipated to mark the beginning of a new housing cycle when London starts to outperform the rest of the country. Hamptons forecasts 4.0% price growth in London in Q4 2025, outpacing the other regions for the first time since 2015. However, unlike the beginning of previous cycles such as in 2008 and 1994, areas outside Prime Central London (PCL) are expected to be the strongest performers. PCL’s recovery is likely to be delayed as buyers and sellers adjust to revised tax rules.

Overall, affordability is expected to remain the key determinant of the market's direction, with incomes set to outpace inflation for the second year running, encouraging those who had been deferring relocation to consider moving.

2026

The base rate is expected to settle at around 3.5% in 2026, with typical mortgage rates following suit and falling to an average of about 4.0%, down from 4.6% today. However, towards the end of the year, mortgage rates may start to edge upwards as financial markets anticipate the next interest rate cycle.  

As a result, Hamptons' house price growth forecast for 2026 has been downgraded from 5.0% to 3.5%. This adjustment reflects the dampening effect of higher interest rates alongside a fairly lacklustre and higher tax economy, which, whilst set to improve, remains weak on a historical basis.

Price growth is expected to be driven by the South of England, with house prices reaching new peaks in many locations in these regions. This could enable households whose house prices had previously taken a hit to contemplate moving. A small revival in PCL is also anticipated, as buyers begin to adapt to the tax increases introduced in the 2024 Budget.  

The lack of new home construction due to planning and market restrictions is expected to support prices, to a degree, by limiting supply. However, there may be an increase in flats for sale as a result of leaseholder reforms and the remediation of blocks with dangerous cladding.

2027

Longer-term house price growth across Great Britain is expected to average about 2.5% annually. This compares to the 2015-2019 period when annual house price growth averaged 3.9% with base rates below 1%. The new era of interest rates, likely to remain above 3%, is expected to temper house price growth.

Despite the strengthening economy, homeownership will remain challenging for low-income households due to more stringent stress-testing checks and higher deposit requirements compared to previous cycles.  

London prices are forecast to outpace other regions, but not to the degree seen earlier this century. Between the end of the global financial crisis of 2008 and 2012, prices grew by 20% in the capital. Between the end of 2024 and 2027, Hamptons is forecasting a 14.5% increase, following just 11% growth between 2016 and 2023. Affordability constraints combined with higher taxation mean it has downgraded its London forecast by at least 1% each year from here on in.

Price appreciation in London is expected to ripple out to other regions more rapidly than in the past, particularly benefiting other markets in the South of the country. This is partly due to the impact of flexible working, which has more closely tied the fortunes of these areas to London.

However, the cyclical nature of the housing market means that the North West, Yorkshire & The Humber and Wales will have seen prices rise more in 2022 alone than they will over the next four years.

Transactions

Transaction volumes have shown signs of recovery in 2024, with sales across Great Britain likely to total just under 1.1 million, in line with Hamptons' previous forecast and up from 996,000 in 2023, which was the lowest in a decade.  

This rebound has been fuelled by first-time buyers, who accounted for a record 31% of all sales. However, transaction numbers remain below the pre-pandemic 2015-19 annual average of 1.2 million, as the higher interest rate environment, broader uncertainty and rising house prices continue to pose barriers for potential buyers.

Looking ahead to 2025 and 2026, transactions are forecast to bounce back to 1.2 million, a 9% increase over 2024. This growth is expected to be driven by lower borrowing costs and improved affordability. Furthermore, a recovery in house prices should unlock more moves from those who have stayed put in recent years.

However, the market may be distorted by changes in stamp duty rates scheduled for April 2025. While there might be a slight uptick in transactions just before these changes take effect, the overall impact is not expected to cause a significant rush as the potential savings for most movers will be relatively small. There may, however, be more of a fillip from first-time buyers in the South of England.

Longer-term, it’s likely that the base rate will bottom out just above the 3% mark. Based on this, Hamptons expects annual sales volumes to settle closer to 1.3 million in 2027, lower than the 1.4 million it initially expected a few years ago. While rising household numbers over the past decade will increase demand, higher transaction costs and interest rates will weigh on the number of moves.        

Aneisha Beveridge, head of research at Hamptons, said: "As the end of 2024 approaches, the mood of the housing market has shifted from trepidation to cautious optimism. Lower mortgage rates have been the principal catalyst for change, falling more rapidly than we expected.

“Even though an improving affordability picture, driven by lower mortgage rates and robust pay rises, looks likely to fuel price increases and transactions in 2025, higher rates for longer will weigh on long-term growth. The combined effect of persistently higher interest rates and sluggish economic growth is likely to dampen long-term house price performance compared to previous cycles. It will also remain a barrier to homeownership for many would-be first-time buyers, limiting longer-term transaction numbers.

"While the future direction of interest rates seems to have been mapped out, the pace of this journey and its ultimate destination remains uncertain. Changes to rate expectations remain the key risk to the housing market. But what seems more certain is that the London market is set to outperform the other regions next year as a new cycle begins.”

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Rozi Jones | Editor, Financial Reporter

11th November 2024

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London is a major global city and world cultural capital, with strengths in the arts, commerce, education, entertainment, fashion, finance, healthcare, media, professional services, research and development, tourism, and transportation. A major settlement for 2,000 years, London is the world's largest financial centre and the 5th or 6th richest city in the world.

The property investment capital of the UK, London has a diverse array of housing and communities across a giant urban area. You can find different types of long-let investment property in various areas to suit most budgets, and being the world's most-visited city as measured by international arrivals means there is no shortage of short-let opportunities too. Having the largest concentration of higher education institutes in Europe guarantees that London has an active student property rental market as well.

Chapter 01
MOVING ON UP

Property worth £1 million or more in London continues to make a comeback as the world adjusts to life alongside the coronavirus pandemic – with house prices up and discounts down.

Prices have risen particularly well in areas outside central London, such as Richmond, Wandsworth and Islington, as we see a ‘race for space’ brought on by the pandemic.

This has created an opportunity for those looking to buy centrally as some areas are currently pretty cheap compared to historic levels. Prices in Knightsbridge & Belgravia, for example, are 17 per cent below their peak in 2014.

That may not last though, with many UK property agents predicting significant growth in central London’s luxury housing market this year.

Peter Flavel, CEO, Coutts, says, “The market for properties worth £1 million or more in London is well and truly on the rebound, having been in the doldrums over recent years. Prices are up, with new records set in some areas, and the amount buyers are getting off the asking price is dropping.

“Kensington, Notting Hill and Holland Park have been the most active in the over £10m price bracket, while King's Cross and Islington have seen rises of 12 per cent over the last 12 months.”

He adds, “The pandemic has forced many to rethink what they want. Clients are looking for more space, a bigger garden, and a home office. To get all that, many have been forced to move out a little further, and the resulting demand in those areas has caused prices to shoot up.”

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CHAPTER 02
SUPER PRIME SALES SURGE

Meanwhile, the market for super prime properties – those worth £10 million or more – has skyrocketed.

Sales have doubled in 2021 compared to the previous year, and from October to December we saw the highest number sold in any three-month period since 2016.

Katherine O’Shea, Director, Coutts Real Estate Investment Service, says, “There appears to be a sense of opportunity as super prime buyers take advantage of a central London market that’s had pretty stagnant growth for a number of years.

“For many investors there’s a desire to put funds into assets they can enjoy; for others it’s simply about investing in real assets that appear cheap compared to historic prices.”

Data for Q4 2021. Source: Coutts/LonRes
(January 2022)

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CHAPTER 03
THE MARKET IN NUMBERS

The latest numbers and analysis on luxury London property come from our regular review of the market – the Coutts London Prime Property Index (CLPPI) – which reveals overall trends and what’s happening area-by-area (see below).

Key highlights for the last three months of 2021 include:

• prime property prices increased 3 per cent, which brings annual house price growth to 5 per cent – driven mainly by outer prime London markets
• prices are still low historically though – currently 8 per cent below what they were when the market peaked in 2014
• super prime (£10m+) property prices have risen 11 per cent in the last year
• over a third of high-end London property is being sold at a discount but buyers are getting less off the asking price – around 7 per cent compared to 8 per cent the previous year, and 13 per cent three years ago
• the number of properties available for sale has dropped – down 17 per cent on the previous year – and new listings are down 12 per cent
• the difference in price between central London and other parts of the capital has shrunk dramatically – four years ago central property prices were over 70 per cent more expensive than outer prime markets, now they’re roughly 58 per cent pricier

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By Matthew Sellers

18 Sep 2024

One thing that has always been constant in turbulent times is the allure of our capital city’s real estate. London has always been that best street to buy the worst house on – but maybe not right now.

London’s luxury housing market is sluggish, facing both a drop in demand and fewer transactions. A recent report by Baker Street-headquartered Knight Frank  has highlighted a 22% reduction in the sale of homes priced above £10 million over the 12 months leading up to July 2024, compared to the previous year. The picture is particularly grim for the most expensive properties, with only 10 sales above £30 million, a steep fall from the 38 sales during the same period last year. The total value of high-end property sales in London reached £2.77 billion for the past year, substantially down from £4.3 billion.

Camilla Dell, founder of Black Brick told Bloomberg that things are gloomy, “Sentiment in prime central London is significantly down,” as she sees market conditions similar to those of the financial crisis. A substantial amount of inventory, price reductions, and general unease among sellers have characterised the current market.

Data company LonRes also agrees, with its figures showing that there were 7.5% fewer sales transactions in August compared to the same month in 2023. Its figures show that the number of transactions above £5 million were down a whopping 47.2% compared to the previous year – and it’s not due to a lack of stock – those numbers are up by over 30% compared to the same period the previous year.

Market uncertainties are compounded by broader economic factors. July's UK election, which saw the Labour Party take power, heightened market concerns due to expectations of policy shifts. Speculation surrounding tax increases—especially on capital gains and inheritance taxes—has further added to buyer hesitation. Stuart Bailey, head of super prime sales at Knight Frank, emphasises, “The budget is making people wait and see—so it doesn’t matter whether it is good, bad, or ugly. The point is that it’s uncertain, so people are hesitating now.”

Nick Gregori, head of research at LonRes agrees.  “The PM and Chancellor are trying to find a balance between being too negative about the state of the economy and making their case for spending cuts and tax rises,” he  told the negotiator.co.uk. “Either way, it is not the best for improving sentiment in the housing market. There is a danger that both buyers and sellers move back to a pattern of ‘wait and see’ ahead of the Budget and potential further interest rate cuts.“

Bailey also points out that prices in London’s prime property market are down 14% from their September 2015 peak, and 25% in dollar terms due to the weakening pound since the 2016 Brexit referendum.

As if to further complicate matters, broader economic shifts are influencing buyer behaviour. Recent data from the Office for National Statistics (ONS) shows UK house prices rising by only 2.2% in the year to July 2024, with London seeing a 0.4% decline—the weakest performance across the UK. Meanwhile, house price growth was more robust in other regions, particularly the North East, where prices increased by 3.8%. Despite this, London remains the most expensive housing market in the UK, with the average home costing £533,000.

London’s most expensive streets

_{(Figures; Rightmove.co.uk)}

Rising interest rates and rent inflation also contribute to the overall housing market dynamics. The Bank of England’s latest decision to cut interest rates for the first time in four years provided some temporary relief. However, private rents in the UK have continued to climb, with a national average rent increase of 8.4% in the year to August 2024, though London’s rent inflation outpaced the rest of the country, rising by 9.6% to an average of £2,129 per month.

This increasing pressure on the rental market may offset some of the challenges faced by the luxury sales market, as high interest rates and looming tax changes are causing potential buyers to hesitate. Bailey describes the current super prime market as “frustrating” and acknowledges that sellers are lowering prices to push deals through. He suggests that while this may be an opportune time for cash buyers due to reduced competition, the market remains in a holding pattern, with most buyers and sellers awaiting clarity from the upcoming UK budget on October 30.

Meanwhile, the broader UK property market is also feeling the strain. As demand for rental properties outpaces supply, especially in regions like London and Northern Ireland, rental prices are expected to remain elevated, even as inflation begins to stabilize. Experts predict that volatility in house prices could arise, especially as some property owners may rush to sell ahead of potential capital gains tax increases expected in next month’s budget announcement by Rachel Reeves, the Shadow Chancellor of the Exchequer.

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