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What are the price, rent, and transaction forecasts for 2025 and beyond?
Residential forecasts for prices and rents
Download the FULL version of Kate Faulkner's 'Forecast Special' for 2025 here
I started last year’s forecast with the words “During these turbulent times”. The start to the commentary for the forecasts for 2025 is much better – despite turbulent times globally - the UK market has recovered from its ‘mini’ property recession and technical, economic recessions over the last few years.
And it’s fair also to say, versus last year’s forecasts, the year has actually gone much better than expected on all fronts: prices, transactions, and even rents, which have had an unusually sustained period of above-inflation growth.
Last year, I also had a paragraph saying, ‘We don’t believe in the Armageddon that forecasters think prices and transactions will tumble’, and I’m very happy to say that statement still holds today.
For a summary of what’s likely to happen in 2025 to prices, rents, transactions, and economic forecasts or what’s likely to happen over the next five years, please see the attached ‘2025 Forecast Summary’.
Over the years, we have seen many forecasters and tracked their progress and success rate.
For me, the ones that have been the best and most consistently correct are Capital Economics. They have successfully predicted inflation rates and base rates for many years, even though they have often been outliers with regard to their forecasts.
These two indicators are the most important ones to the property market, so we always keep an eye on what they predict – and if their forecasts change post a budget, autumn statement, or global influencers.
Key to the future of the property market are inflation and base rates. Currently, the big question is when do we get back to ‘normal’ and what might that look like?
Currently, we are achieving around the 2% government ‘targeted’ inflation and the hope is that long term base rates will be around 3% - but as we are currently at 4.75% and the Bank of England Governor has stated rates will fall slowly post the Labour budget, forecasts are that rates won’t hit this level now until late 2026 or 2027 as opposed to the hope that we’d achieve that in 2025.
Download the FULL version of Kate Faulkner's 'Forecast Special' for 2025 here
KPMG: UK Economy forecast – September 2024
The key figure from KPMG is the base rate forecast – they predict that rates will fall slightly faster than Capital Economics, falling to 3.5% in 2025. They also state: The UK economy could see growth momentum improving as a result of easing uncertainties and lower interest rates, with GDP growth rising to 1.2% in 2025. So a slightly better outlook economically than CE from a property perspective. However, it’s good to see both of these economic forecasting giants pretty much agree on what will happen next year – especially as it should aid a return to a healthy property market for 2025.
https://assets.kpmg.com/content/dam/kpmg/uk/pdf/2024/09/uk-economic-outlook-september-2024.pdf
OBR: Economic and fiscal outlook – October 2024
The Office for Budget Responsibility (OBR) is an independent organisation that analyses the UK's public finances and predicts what its impact will be on UK PLC. In doing this, they forecast the impact of public investment – or austerity – on the economy.
They are slightly more pessimistic than CE and KPMG as they state, “Market expectations for interest rates remain volatile, with expectations for Bank Rate in 2025 varying between 3.6 and 4.7 percent,” suggesting interest rates and, therefore, mortgage rates will stay higher for longer.
Another piece of data they provide is forecasts on net migration. It’s clear from data provided by Zoopla that the net migration hikes shown in the charts below have heavily impacted the Private Rental Sector – with rents continuing to increase over and above inflation due to the huge increase in demand versus previous years for rental accommodation.
Another useful bit of analysis and confirmation from the OBR is that private rents move in line with wages – not in line with what landlords would like to charge for them, nor in line with house prices:
“We find that the long-run response of changes in private rents to average earnings is close to one-for-one, even though private rental inflation and income growth can deviate significantly in the short run. We thus assume that in the long run, private rents will grow in line with average nominal earnings growth, which our most recently published long-term economic determinants place at around 3.8 per cent a year.”
As such, they predict that rents will move in line with wages, and this is pretty much the same view of the likes of Savills and Zoopla and their predictions for nominal and real earnings growth (this is net of inflation) show earnings growth will continue to reduce in 2025 to around 2-3%.
https://obr.uk/docs/dlm_uploads/OBR_Economic_and_fiscal_outlook_Oct_2024.pdf
NIESR: National Institute UK Economic Outlook Autumn 2024
The NIESR forecasts much further into the future and suggests that 2025 will be a better year than 2023 and 2024, will improve further into 2026 and then pretty much stabilise through to 2030. They expect inflation to hover around 2%, and unemployment rates at 4%. Out of all our economic forecasters, they suggest we will have to wait the longest for bank base rates to fall to 3%, and even then, they don’t think they will fall below 3.3%, meaning mortgage rates will stay higher for longer, potentially preventing the property market from achieving its norms of 1.2mn transactions and 4-5% rises per annum.
CEBR: UK Economic Outlook - Q4 2024
They are slightly more pessimistic about UK PLC as they state: “The UK economy grew by 0.7% in Q2 2024, the second consecutive quarter of strong growth after a technical recession. However, this growth figure, aided by strong rates of government spending, masks ongoing weakness in UK GDP, as household consumption remains lower than in Q2 2023” but, on a happier note: “The improvement in real incomes will be a key driver of economic growth in the year ahead, while the labour market will begin to tighten again towards the end of the year.”
https://cebr.com/uk-economic-outlook/
Download the FULL version of Kate Faulkner's 'Forecast Special' for 2025 here
Below are the key forecasts for 2025, 2026, 2027, 2028 and from some, 2029, in other words up until the end of the current parliament.
In summary the forecasts are:
The forecasters are pretty consistent across the UK and London for the next few years.
The lowest prediction for UK price growth is 2.5% from Knight Frank with Savills being the most optimistic at 4% - but in reality, that’s not much different!
From a London perspective, property price growth forecasts do vary a lot more. Knight Frank is the most pessimistic with growth from around 2% rising to 4% in 2029. Meanwhile the CBRE are the most optimistic with growth of 3.1% in 2025, but rising to 5% and 6% or more up to 2028.
Transaction wise, two out of the three forecasters show volumes changing hands in 2025 to go back to their 1.2 million norm, while Savills clearly believe that the market won’t quite return to normal for a few years, especially due to first time buyer affordability.
Meanwhile, the rental market is pretty much expected to (just) exceed price growth, but most forecasters suggest rises will range between 2.5% and 4% over the next few years in both the UK and London.
Download the FULL version of Kate Faulkner's 'Forecast Special' for 2025 here
CBRE: Residential Forecasts Q3 2024
Sentiment has steadily improved in the sales market this year, which was further bolstered by the recent base rate cut. With a further cut forecast towards the end of the year, mortgage rates will continue to edge lower. As such, buyer budgets will improve, leading us to upgrade our previous forecast for house price growth.
Their latest report sets out our forecasts for house prices, sales volumes, and rents across the UK for the next five years.
Savills: Mainstream Residential Forecasts 2025-29
One of the most useful forecasts that Savills produces is the ‘average mortgage rate’. This shows that mortgage rates are expected to fall to around 4% in 2025 and then fall below this level to 3.36% in 2026.
This is significant because data from Zoopla shows that we will typically have a ‘normal’ property market when mortgage rates hit 4%, so good news for the next few years and especially if mortgage rates fall to 2.64% from 2027. For me, with these stats, it’s a bit of a surprise that Savills are predicting transactions will be slightly below the 1.2 million norm – predicting 1.04mn in 2025 (especially as we have already sold more properties this year), then rise, at most to 1.15mn in 2028.
https://www.savills.co.uk/research_articles/229130/368928-0
JLL: UK Residential Forecasts 2025-2029
https://residential.jll.co.uk/insights/news/jll-residential-forecast-2025-2029
Knight Frank: UK Housing Market Forecast: November 2024
Sales forecasts are revised down slightly after the Budget while rental value growth is expected to increase marginally.
https://www.knightfrank.com/research/article/2024-11-25-uk-housing-market-forecast-november-2024
Hamptons: Market Insight: Forecast Edition - Autumn 2024: Things can only get better, right?
Cluttons: UK economic outlook & policy update Autumn 2024
"The overall economic picture in the UK is reasonably upbeat, although the full impact of the National Insurance rise from next April remains to be seen. With the prospect of more rate cuts coming however, there is additional impetus in the central London residential markets, with our offices reporting higher levels of activity is we move towards the end of the year."
Zoopla: Outlook – house prices
“Our assumption remains that mortgage rates will remain close to current levels c4%-4.5% over 2025. This means wage growth will have to do the hard work supporting affordability and buying power with house price growth likely to remain modest. The market remains on track for a modest 2% price increase in 2024, with sales of 1.1m.”
https://advantage.zoopla.co.uk/wp-content/uploads/2024/10/HPI-Oct-2024-ZP.pdf
Zoopla: Outlook – rental market
"We expect rental inflation to slow to 3-4% by the end of 2024 as weakening demand and affordability pressures limit rental growth. Weaker rental growth in cities will lead the slowdown, but there is a large rental market outside cities where there is room for above average growth. This explains the more drawn-out slowdown in rents. Tax and policy change will continue to see some landlords exiting the market, keeping supply constrained. This will keep an upward pressure on rents into 2025."
https://advantage.zoopla.co.uk/wp-content/uploads/2024/09/UK-rental-market-report-Q3-2024.pdf
I have to say I’m on the side of the optimists for transactions from 2025 – I think they will reach their annual average of 1.2mn over the next few years. We are likely to hit 1.1mn sales this year (2024), so if we can do that when rates are at 4.75%, as soon as they head towards 4%, people will start moving again. This is especially likely due to the subdued sales over the last few years, which means there will be pent-up demand that is likely to start buying again as mortgage rates become affordable once more.
Source: HMRC
Source: HMRC; Savills; JLL; Zoopla; CBRE; Knight Frank; OBR
Savills: Improving market activity
Savills are the only forecaster that produces this hugely important break down of buyers in the market. First time buyers are predicted to hold steady, although if the government does a good job on housing, especially with new incentives to buy, I think this could increase. Overall, the fall in transitions predicted seems to be due to mortgage BTL investors dropping back by 20 to 30,000 per annum.
https://www.savills.co.uk/research_articles/229130/368935-0
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