British home prices are set to rise faster than expected this year, driven by lower borrowing costs from the Bank of England. However, the latest poll revealed that rental costs are anticipated to surge even faster due to supply-demand imbalances. The average home price is projected to increase by 3.5 per cent this year and 4.0 per cent in 2024, surpassing previous forecasts. In London, home prices are expected to rise 3.0 per cent in 2025 and 4.0 per cent in 2026.
Despite this growth, the housing market faces constraints from higher taxation and a weak economic environment. Experts say mortgage rate reductions should boost prices and sales volumes, but these factors will limit property values. On the other hand, rents are set to climb 4.0 per cent nationally this year and in 2026, with rents in London expected to rise at the same pace.
The supply-demand imbalance in the rental market is expected to persist while the sales market benefits from greater supply. Government plans to build 1.5 million homes over the next five years may help alleviate some pressure, but a Renters' Rights Bill and changes to tax rules could encourage landlords to sell, exacerbating the supply issue for renters.
In terms of affordability, first-time buyers will likely see improvements due to falling mortgage rates and rising salaries. However, economists remain cautious about the wider economic outlook, with inflation expectations rising and wage growth accelerating. The Bank of England is expected to cut the Bank Rate to 3.75 per cent by year-end, but the economic recovery is expected to be slower, with growth forecasts downgraded to 1.1 per cent this year and 1.4 per cent in 2026.
