The UK property market is entering a new phase of slower capital appreciation, with property consultancy Hamptons revising its long-term growth forecasts following the latest Budget.
Rising interest rates, higher taxes, and persistent inflationary pressures have dampened the outlook for house price growth and transaction volumes, despite a projected market recovery starting in 2025.
Hamptons’ updated house price growth forecast
Hamptons predicts modest house price growth of 3% across Britain in 2025, followed by 3.5% in 2026 and 2.5% in 2027. London is expected to lead the recovery, with annual growth of 4% in 2025 marking the capital’s first outperformance of other regions since 2015.
However, the consultancy has downgraded its longer-term outlook, forecasting a total house price increase of 12.5% between 2024 and 2027. This compares unfavourably to pre-pandemic growth cycles, reflecting the challenges posed by higher interest rates, sluggish economic performance, and increased taxation.
Annual house price growth forecast (Hamptons)
Region | Q4 2023 | Q4 2024(f) | Q4 2025(f) | Q4 2026(f) | Q4 2027(f) | 2024–2027 Total Growth |
London | -4.8% | 2.5% | 4.0% | 4.5% | 3.5% | 14.5% |
South East | -4.0% | 3.0% | 3.5% | 4.0% | 4.0% | 14.5% |
Great Britain | -2.6% | 3.5% | 3.0% | 3.5% | 2.5% | 12.5% |
2025: a pivotal year for the housing market
Hamptons predicts that 2025 will mark the beginning of a new property cycle, driven by falling mortgage rates, increased affordability, and pent-up demand. Transaction volumes are expected to rise from 1.1 million in 2024 to 1.2 million in 2025, with the average house price in Great Britain reaching £300,000.
The London market is poised for a stronger recovery, with growth concentrated in areas outside Prime Central London (PCL). Buyers and sellers in PCL are likely to take longer to adjust to new tax policies introduced in the Budget.
Interest rates to remain a key influence
Interest rates are forecast to settle around 3.75% by the end of 2025, with mortgage rates averaging 4%. While these cuts are expected to improve affordability, they may not significantly reduce borrowing costs for buyers with high equity.
Slower growth and higher taxes weigh on 2026
Hamptons projects a slight slowdown in 2026, with price growth of 3.5% across Britain. Higher taxes and an uneven economic recovery will weigh on the market. However, a shortage of new housing stock and the resolution of cladding issues could partially offset these headwinds.
Longer-term outlook: steady but subdued
From 2027 onwards, house price growth is expected to average 2.5% annually. While this is slower than pre-pandemic cycles, the continued rise in household numbers and constrained housing supply will provide support.
London is forecast to maintain its position as the growth leader, with a 14.5% increase in prices between 2024 and 2027. However, the ripple effect of price gains is expected to reach other regions more quickly due to flexible working trends.
Rental market: strong growth persists
The rental market continues to outperform, with rents forecast to rise 17% between 2024 and 2027, far outpacing house price growth. Landlord profitability is under pressure from higher mortgage rates and regulatory changes, but tight supply and robust tenant demand are expected to sustain rental increases.
Hamptons projects annual rental growth of 4.5% in 2025, softening to 4% in 2026 and 2027. However, affordability constraints and new government regulations, such as the Renters’ Rights Bill, may reduce rental supply and put upward pressure on rents.
Conclusion
The UK property market is entering a period of adjustment as it navigates higher interest rates, tax changes, and economic uncertainty. While a recovery is expected in 2025, growth will be more subdued than in previous cycles. Investors and homeowners will need to adapt to this evolving landscape, with opportunities likely to be concentrated in prime areas and the rental market continuing to show resilience.