British home prices will rise faster than previously expected this year, but the increase will be outpaced by surging rental costs as demand outstrips supply, a Reuters poll found.
The market may receive a helping hand from the Bank of England, which is predicted to cut Bank Rate by another 75 basis points to 3.75 per cent by year-end, according to another Reuters poll of 66 economists.
Support from lower borrowing costs means the average price of a British home will increase 3.5 per cent this year and 4.0 per cent next, according to a February 14-25 Reuters poll of 20 housing market experts. A poll last quarter predicted a more modest 3.1 per cent rise in 2025.
In London home prices are expected to rise 3.0 per cent in 2025 and 4.0 per cent in 2026.
“The slow downward drift in mortgage rates this year should boost prices and sales volumes,” said Aneisha Beveridge at estate agency Hamptons.
“But by historic standards, property values will remain tightly constrained by higher taxation and the weak economic backdrop.”
Those price forecasts are higher than what economists say inflation will be this year and next – 2.8 per cent and 2.3 per cent. But the cost of renting will accelerate even quicker, rising 4.0 per cent nationally this year and in 2026.
Rents in London were expected to rise at the same rate.
“Supply/demand imbalance remains in the rental market while the sales market has much greater supply and mortgage rates averaging 4-5 per cent keeping a limit on price inflation,” said Richard Donnell at property website Zoopla.
The Labour government has pledged to build 1.5 million homes over the next five years. It also plans to introduce a Renters’ Rights Bill this year, which alongside changes to tax rules could push landlords to sell up and further limit supply for tenants, analysts say.
Asked how purchasing affordability for first time buyers would change over the coming year, an overwhelming 12 of 15 respondents said it would improve.
“An improvement in purchasing affordability will result from a fall in both actual mortgage rates and stress rates, plus the typical (first time buyer) salary increasing at least in line with the increase in the property prices,” said Scott Cabot at real estate services firm CBRE.
LITTLE CHANGE IN RATE VIEW
Economists mostly kept their interest rate forecasts unchanged from a poll taken in January despite raising their inflation predictions for this year and next.
Accelerating wage growth and rising inflation have prompted the BoE to maintain a cautious approach towards easing monetary policy. The BoE cut Bank Rate in February by 25 basis points to 4.50 per cent.
The central bank raised its inflation forecast this month and more than 65 per cent of contributors who participated in both the February and January polls raised theirs too. Median forecasts showed inflation averaging 2.8 per cent this year compared to 2.5 per cent predicted previously.
“While we expect further progress in services disinflation, the higher-than-expected January print and the upcoming hike in gas and electricity bills in April have led to an upward revision in our 2025 inflation forecast,” noted economists at UBS.
Inflation rose to a 10-month high of 3.0 per cent last month.
More than 90 per cent of economists polled, 23 of 25, said the risk to their inflation outlook for end-2025 was that it comes in higher than they expect rather than lower.
Yet the majority made no changes to their rate forecasts and expected the BoE to cut Bank Rate to 3.75 per cent by year-end, lowering rates at a steady 25 bps per quarter.
Poll medians showed economists downgraded their growth forecasts for the UK economy. It was predicted to expand 1.1 per cent this year and 1.4 per cent in 2026, slower than 1.3 per cent and 1.5 per cent predicted last month.
