The UK housing market is poised for a period of steady recovery in 2025, with property prices predicted to rise by 3.4% nationally and 3% in London, according to new forecasts from Chestertons.
The forecast suggests a more balanced and predictable housing market in 2025, with a focus on affordability and value likely to shape both sales and rentals in the coming years.
Modest growth is expected to be underpinned by falling mortgage costs, stable economic conditions, and inflation aligning with the Bank of England’s 2% target.
While UK property prices have edged up by around 3% in 2024, London has experienced a contrasting decline of approximately 3%.
RISE IN SUPPLY
Chestertons attributes this divergence to an increase in the number of properties for sale, changes to stamp duty, and evolving fiscal policies.
The rise in supply has been driven partly by homeowners adjusting to the realities of higher mortgage repayments.
Many who secured loans during the era of historically low interest rates have been compelled to sell as their fixed-rate deals expired, leading to significantly increased monthly costs.
Additionally, October’s Budget introduced higher stamp duty rates for second homes and buy-to-let properties, curbing investor demand. Coupled with a stronger pound and the abolition of the non-dom tax regime, demand from overseas buyers has waned, particularly in Prime Central London.
2025 OUTLOOK
Chestertons expects the housing market to regain stability in the coming year, with no sharp spikes in prices but a more predictable trajectory of growth. Factors such as improved affordability, pent-up demand, and renewed market confidence are forecast to provide a steady foundation for price increases over the next three years.
London’s property market will remain highly dynamic, shaped by both global and domestic forces. While overseas demand may weaken further, the reduction in competition from buy-to-let investors could create opportunities for first-time buyers.
BALANCING AFFORDABILITY AND DEMAND
The rental market in London is also entering a phase of adjustment. Chestertons projects rental growth of 1.5% in 2025, slightly below the rate of inflation.
After several years of significant increases, the rental sector cooled in 2024 due to an influx of available properties and the mounting financial pressure on tenants.
With average rents nearing 40% of household incomes, many renters are finding it increasingly difficult to accommodate further increases. This has led to slower tenant turnover and more renters negotiating for better terms.
Looking ahead, demand for rentals will remain robust, as high mortgage repayments and deposit requirements continue to deter prospective buyers. However, landlords may face challenges raising rents further, given the strain on tenants’ budgets.
ADAPTING TO NEW REALITIES
Chestertons says landlords will need to navigate a more selective rental market, where affordability and value are key considerations for tenants.
Smaller, centrally located properties or those with excellent transport links are expected to remain in high demand, offering better prospects for rent increases.
