Before Donald Trump officially began his second term as US President, his policies were already creating shockwaves in the UK housing market.
The political uncertainty, coupled with rising inflation expectations in the US, has led to volatility in global borrowing costs. The UK has not been spared, with the five-year SONIA swap rate, a key metric for pricing fixed-rate mortgages, surging from 3.4% in mid-September to 4.3% by mid-January.
This spike has compounded existing pressures on UK borrowers and heightened political scrutiny over Chancellor Rachel Reeves’ fiscal policies, which have seen increased public borrowing and spending. The subsequent tightening in affordability has begun to leave its mark on the housing market.
Uncertainty breeds opportunity
James Cleland, head of Knight Frank’s Country division, sees opportunity amid the turbulence:
“For those who can filter out the noise of recent weeks, it’s actually a smart time to buy. The quality of stock on the market is high, and most vendors recognise the headwinds facing buyers. The alternative is to wait several years for a potential change of government, by which time prices could be 15% higher than they are today.”
Knight Frank forecasts 17.6% growth in country markets by 2029, making this a potential window of opportunity for buyers who are prepared to act now.
Price trends and market dynamics
The Country House Price Index reported a 0.3% decline in Q4 2024, translating to an annual drop of 0.9%—the narrowest fall since early 2023.
- Urban outperforming rural: Townhouses saw a smaller decline of 0.5% in 2024, compared to 3% for farmhouses, as needs-driven urban buyers remained active.
- Luxury segment hit harder: Properties over £5 million saw price drops of 1.8%, compared to 0.9% for homes priced between £500,000 and £1 million, underscoring the effect of sentiment shifts even on cash buyers.
What to expect in 2025
The property market is likely to face renewed pressure in the short term as high interest rates weigh on affordability. However, a temporary boost in demand is expected before April 2025, spurred by an impending stamp duty increase.
Longer-term, demand in the country market is expected to stabilise as financial markets price in two anticipated Bank of England rate cuts during 2025. These cuts could provide much-needed relief, particularly in the mid-market segment, where affordability is a critical factor.
A market of relative value
Country properties have demonstrated comparatively slower price growth over the past 16 years, rising just 18% since 2009. This trails both prime central London (+45%) and the Nationwide UK mainstream index (+75%), suggesting there is untapped value in these markets.
The road ahead
While the ‘escape to the country’ trend has largely faded, affordability pressures and high borrowing costs may draw attention to more overlooked regional markets. The introduction of new non-domiciled tax rules in April could also inject fresh capital into prime country markets, adding a layer of resilience.
As Cleland aptly summarises, buyers who take advantage of today’s softened conditions may be well-positioned to benefit from future growth, even as political and economic uncertainties persist.