The UK housing market’s outlook has shifted following Labour’s first Budget, which has introduced higher taxes and influenced lender behaviour.
As a result, property consultancy Knight Frank has revised its long-term forecast, projecting slightly slower house price growth over the next five years.
Revised growth predictions
Knight Frank’s updated forecast now anticipates:
- 2025: 2.5% average house price growth (down from 3%)
- 2026: 3% growth (down from 4%)
- 2027: 3.5% growth (down from 5%)
Over the next five years, cumulative UK house price growth is expected to reach 19.3%, a slight reduction from the 20.5% forecast before the Budget.
Factors influencing the market
Tom Bill, head of UK residential research at Knight Frank, attributes the revisions to recent economic developments:
“We have seen a jump in borrowing costs since the Chancellor set out her economic plans and expect more downwards pressure on prices and transaction volumes in the short-term. Mortgage lenders are reluctantly pushing rates higher, which will eventually feed through into house prices.”
Higher gilt yields and the expectation that interest rates will remain elevated for longer are key drivers of this market recalibration.
London market outlook
Knight Frank has also adjusted its expectations for London:
- Greater London: Cumulative growth for 2025–2029 is now forecast at 15.3%, slightly lower than earlier predictions.
- Prime Central London (PCL): Prices are expected to end 2024 with a 1% annual decline. A slower recovery is projected in the short term due to increased taxes on overseas investors, entrepreneurs, and second homes. Growth in PCL is forecast at 2% in 2025, revised down from 3%.
Assessing the impact
The changes to these forecasts reflect broader economic pressures, including policy uncertainty, lender reactions, and the evolving economic landscape. However, Knight Frank emphasises that these adjustments are not dramatic.
“We will be in a better position to assess the outcome of the Budget and other policy decisions early next year,” says Bill.
A cautiously optimistic market
While the UK housing market faces headwinds, long-term price growth remains positive. With cumulative price increases of nearly 20% over five years, property remains a resilient investment, albeit with more measured growth than previously anticipated.