We nudged up our 2025 UK house price forecast to 3.5% from 2.5% last week.
It was a marginal increase, considering how much the interest rate outlook has improved. Markets expect a bank rate of about 3.5% this time next year, which compares to an estimate of more than 4.25% in early January.
The forecast also shows how we think the momentum in year-on-year growth will be largely sideways. The annual rate is currently just under 3.5%, according to both Nationwide and Halifax.
Why such a tentative increase this year?
Well, we think demand could be kept in check by higher inflation or a prolonged bout of “guess the tax rise” before the Budget this autumn, as we explored last week.
But another factor keeping growth in check is the imbalance between supply and demand, a trend we noted earlier this year in prime London markets.
The ratio of new prospective buyers (demand) to sales instructions (supply) was 5.4 in April, as the chart shows.
Outside of the Christmas holidays, which can skew the figures, that was the lowest it has been since the middle of 2018, as the chart shows. Buyer confidence was low seven years ago due to fears of a “no deal Brexit” and the accompanying domestic political instability.
This time around, consumer confidence has been hit by global trade tensions and domestic economic pressures. Meanwhile, supply has risen for reasons that include the March stamp duty deadline, the fact selling plans were delayed due to last year’s election and Budget, and a degree of financial distress as mortgage rates normalise.
There is also a growing number of landlords trying to sell due to upcoming legislative changes, as we explore here.
The result is that new UK sales instructions were about a fifth higher than the five-year average (excluding 2020) in the first four months of the year, and the number of new prospective buyers was a fifth lower.
Buyers have more choice
The stamp duty deadline exacerbated the situation, but only up to a point. The maximum saving was £2,500 for anyone transacting before April, or £11,250 for first-time buyers, which produced a year-on-year jump of 104% in transactions in March, HMRC data shows.
Despite the financial incentive to complete before April, the average ratio of new buyers to new sales instructions was 7.4 in the first three months of the year, which compared to 8.8 in the same period in 2024 and 8.9 the year before.
The result is that house price growth looks likely to be stronger in the autumn than the spring, particularly if looser lending rules come into effect later this year. Annual growth has narrowed in recent months as the imbalance has formed, as the chart shows.
“Buyers are able to take their time at the moment because they have so much to choose from,” said Andrew Groocock, chief operating officer of the estate agency business at Knight Frank.
“That sort of competition means sellers need to get the asking price right when the property is first launched. Even after a reduction, the risk is that a property has already become stale in the minds of buyers, which means it can then take longer to sell or the chances of it falling through are higher.”
Prices down from the peak
The other thing for sellers to bear in mind is that prices may well have fallen since they originally bought the property.
Average prices in prime central London have dropped 19% over the last decade, Knight Frank data shows. Reasons include the more adverse tax landscape and successive bouts of political uncertainty.
Meanwhile, average prices in the Country, which covers a range of urban and rural markets above £750,000 outside London, are 8% down from their peak in 2022, when mortgage rates were under 2%, and the race for space was in full swing.
Those more buoyant conditions meant the average ratio between the achieved price and the initial asking price was 97.1% in April 2022, Knight Frank UK data shows. Last month, the figure was 91.7%.
Anyone wishing to avoid a prolonged wait before selling this year should bear in mind just how much of a buyers’ market it has become.
