The latest long-term forecast for the UK housing market has been revised as a result of the controversial first Budget of the new Labour government.
Knight Frank says tax rises introduced by Chancellor Rachel Reeves, and the reaction of lenders, mean that expectations of short-term cuts in interest rates have swung into reverse. As a result Knight Frank has revised its forecasts and now expects average UK house price growth of 2.5% in 2025, 3% in 2026 and 3.5% in 2027.
This is down from its August forecast of 3%, 4% and 5% respectively.
Over the next five year the agency expects average cumulative UK house price growth of 19.3% – slightly down from its prediction of 20.5% before the Budget.
Tom Bill, the agency’s head of UK residential research, says: “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.”
Knight Frank has also looked again at its forecast for Greater London where cumulative growth between 2025 and 2029 has dipped slightly to 15.3%.
Prices in prime central London are also expected to end this year close to Knight Frank’s forecast of a 1% drop. They fell 1.8% in the year to October, with the annual rate of decline having narrowed from a decline of 2.6% in April.
Bill adds: “We now expect a slower rate of recovery in the short-term in PCL due to changes in how overseas investors and entrepreneurs are taxed and the higher additional rate of stamp duty for second homes. We forecast 2% growth in 2025, down from 3% in August. Lower levels of growth are also expected in the short-term in prime outer London and country markets.
“The changes to our forecasts are not dramatic and we will be in a better position to assess the outcome of the Budget and other policy decisions early next year.
