UK House prices will rise by just 2.5% in 2025, as higher mortgage rates have an effect, Knight Frank has predicted.
The firm reacted to rising borrowing costs since the Autumn Budget, which is pushing lenders to raise mortgage rates.
After that house price growth should increase, to 3% in 2026, and 3.5% in 2027.
Rents are expected to surpass house prices in the next few years, with an increase of 4.0% in 2025, 3.5% in 2026, and 3.5% in 2027.
Knight Frank said: “In simple terms, we don’t yet know if the Budget will work and therefore by how much rates could fluctuate in the years ahead.
“However, 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. Indeed, gilt yields are notably higher than recent Office for Budget Responsibility forecasts.
“As a result, mortgage lenders are reluctantly pushing rates higher, which will eventually feed through into house prices.”
In the next three years UK property prices should see cumulative growth of 19.3%, which should surpass a 15.3% increase in Greater London over the same period.
However Prime Central London could bounce back, as average prices are down 18% from their peak in 2015.
Knight Frank added: “Due to this combination of relative value, greater political certainty, a higher presence of cash buyers and rising levels of global wealth, we expect the price recovery to gather pace over the five-year period and produce stronger cumulative growth (21.6%) than that forecast in August (16.4%).”
