The United Kingdom Residential Property Market Analysis 2025

The UK residential housing market is undergoing a measured recovery, supported by moderate price growth and gradually easing mortgage rates, while persistent supply constraints and evolving government policies continue to influence development activity.

This extended overview from the Global Property Guide covers key aspects of the UK housing market and takes a closer look at its most recent developments and long-term trends.

Table of Contents

• Housing Market Snapshot
• Historic Perspective
• Demand Highlights
• Supply Highlights
• Rental Market
• Mortgage Market
• Socio-Economic Context

Housing Market Snapshot

Despite the challenges encountered in early 2025, the UK residential property market demonstrated notable resilience, with prices continuing their upward trajectory. According to the latest data from Nationwide Building Society's quarterly index, house prices increased by 3.86% year-on-year and 0.87% quarter-on-quarter in Q1 2025, bringing the average house price to GBP 270,867 (USD 341,100)-just 0.83% below the all-time high of GBP 273,135 (USD 343,956) recorded in Q3 2022.

Indicating pronounced downward pressures, Knight Frank cited a rise in borrowing costs in January ahead of Trump's inauguration, a surge in transactions in March driven by anticipation of the April stamp duty increase, resulting in temporary oversupply, and continued concerns surrounding limited fiscal headroom, which have sustained elevated borrowing costs.

United Kingdom's house price annual change:

Data Source: Land Registry.

At the regional level, price growth remained positive across all UK submarkets. The North West registered the strongest rate of increase, supported by rising employment, while price growth in Southern England remained comparatively subdued due to ongoing affordability constraints. London retained its position as the most expensive market, with an average price of GBP 529,369 (USD 666,628), nearly twice the national average, while simultaneously recording the lowest annual rate of growth among the submarkets.

Average house price, by submarket:

Nationwide's monthly index reported a 0.5% month-on-month increase in May 2025, with annual growth rising marginally to 3.5%, up from 3.4% in April. According to Savills UK, this moderate monthly gain may reflect early signs of market stabilization following the decline observed in April, which was attributed to adjustments in Stamp Duty Land Tax (SDLT) thresholds.

Looking ahead, CBRE forecasts a broadly optimistic outlook for the remainder of 2025, supported by expectations of a gradual decline in interest rates. An annual house price increase of 3.4% is projected for the year.

Historic Perspective:

Underlying Market Dynamics from Pre-Crisis Highs to Post-Pandemic Shifts

In the early 2000s, the UK housing market saw rapid growth fueled by low interest rates, high consumer confidence, and readily available mortgage credit. By Q3 2007, property prices had reached the peak, driven by robust economic growth and international investment in major cities, with London and the South East leading the boom.

The global financial crisis in 2008 marked a significant turning point. In Q1 2009, house prices fell by approximately 18.6% from their peak. Recovery across the UK was slow but steady, aided by the Bank of England's (BoE) low-interest-rate policy. While the entire country was affected, London proved more resilient, bolstered by continued international interest and capital inflows. At the same time, it took until 2013 for many regions to regain their pre-crisis price levels.

Between 2014 and 2016, the market rebounded, with house prices rising across the country. Growth was driven by a shortage of housing supply, low borrowing costs, and strong demand. However, the Brexit referendum in 2016 introduced uncertainty, weakening buyer sentiment despite low mortgage rates and continued GDP growth.

The COVID-19 pandemic initially stalled the market in 2020, but it quickly rebounded due to government interventions like the Stamp Duty holiday and historically low interest rates. In 2021, house prices surged by nearly 10% annually, especially in suburban and rural areas, as remote work increased demand for larger homes with outdoor space. However, this rapid growth began to decelerate in late 2022 as inflation and rising interest rates dampened buyer confidence.

In 2023, the market showed signs of stabilization following a correction in 2022. Annual growth remained negative over all four quarters of the year. Transaction volumes were significantly lower, with mortgage approvals down by 31.7% year-on-year. The BoE's decision to maintain interest rates at 5.25% has further cooled demand. 2024 marked a year of cautious recovery and shifting dynamics, with house prices rising by 3.6% year-on-year in Q4. Despite affordability concerns, demand was supported by improved lending conditions with financing costs gradually easing.

Data Source: Nationwide BS.

Demand Highlights:

Demand Patterns Distorted by Policy Shifts, Signs of Stabilization Emerging

The beginning of 2025 marked a period of significant fluctuations in housing demand in the UK. Activity levels surged in March as buyers rushed to complete purchases ahead of the new stamp duty rules introducing higher tax rates. According to HM Revenue & Customs (HMRC), not seasonally adjusted residential property transactions rose by 89.7% year-on-year. This was followed by a sharp 28% year-on-year decline in April, reflecting a pattern last seen in 2016 when a 3% surcharge on landlords and second-home buyers caused a similar market disruption.

Tom Bill, Head of UK Residential Research at Knight Frank, commented: "Frustratingly, the distortive effect of the SDLT changes makes it difficult to assess the underlying health of the market, which would normally feel more active at this time of year <…> The other consideration is that the 3% surcharge for second homes became 5% in April. It takes buyers further up the Laffer Curve - the theory that suggests higher taxes can lead to lower overall revenue due to falling activity."

Data Source: HMRC.

Despite these fluctuations, cumulative buyer activity remained strong. A total of 395,090 residential property transactions were recorded across the UK during the first four months of the year, representing a 29.5% increase compared to the same period in 2024. England accounted for the majority of these transactions (86.7%) and posted the highest year-on-year growth at 33.1%.

Residential property transactions, by submarket:

The May 2025 RICS UK Residential Market Survey, based on industry professional insights, highlighted a soft market backdrop, although short-term sentiment had become slightly less negative. The headline net balance for new buyer enquiries indicated a 26% decline, the fifth consecutive month of negative readings, yet an improvement from the 32% drops reported in both March and April.

For agreed sales, 28% of respondents cited a decrease in volumes, a modest improvement from the 30% decline reported the previous month. Expectations for the near term point to greater stability, with the net balance at a marginal decline of 5%, suggesting the potential emergence of a steadier trend. Looking further ahead, 25% of respondents expect sales activity to increase over the next twelve months-the most optimistic projection since February.

According to RICS, the survey data points to cautious optimism. Falling interest rates and a moderate rise in new listings may help stabilize the market in the coming months. However, ongoing economic uncertainty and the lingering impact of transactions being brought forward ahead of the March stamp duty changes continue to dampen activity. RICS experts note that while current market conditions remain subdued, longer-term prospects appear more positive, provided the Bank of England continues its cycle of interest rate reductions.

Supply Highlights:

Persistent Supply Constraints Challenge Feasibility of Government Targets

Residential construction activity in the UK remained muted. According to the latest data from the Office for National Statistics (ONS), housing starts declined to 31,770 units, down 14.3% quarter-on-quarter, but up 31.7% year-on-year. The annual increase primarily reflects a base effect, following a sharp contraction in activity after the Q2 2023 surge, when developers brought forward projects to avoid the impact of newly introduced regulatory standards. Housing completions over the same period totaled 49,120 units, representing a 7.8% year-on-year drop.

For the 2023/24 financial year (April 2023 to March 2024), revised figures show housing starts reached 163,540 units-a 20.8% year-on-year decrease. Completions over the same period stood at 190,520, down 9.6% from 2022/23.

Commenting on the figures, Pocket Living Chief Executive Paul Rickard stated: "By any measure, these are a disappointing set of figures and continue to highlight the massive challenge the government has in delivering 1.5 million new homes within the next four years."

Data Source: ONS.

Regionally, construction activity remained concentrated in England, which accounted for 80.1% of total housing starts and 83.2% of completions. Scotland followed, with 12.7% of starts and 10.9% of completions.

New dwelling starts and completions by submarket:

According to the latest PwC Construction and Housebuilding Outlook, the private housebuilding sector continues to face headwinds on both the supply and demand sides. Looking ahead, PwC notes that "demand conditions in the private sector [will] start improving in 2025, owing to an expected reduction in interest rates and real wage growth, further supported by increasingly prevalent non-house price incentives provided by housebuilders to support transactions." Nonetheless, the sector's ability to respond to demand is likely to remain constrained due to persistent supply limitations.

While the medium- to long-term outlook for residential construction is broadly positive, industry experts remain skeptical about the feasibility of delivering the government's target of 1.5 million new homes during the current parliamentary term. Savills projects that "there will be roughly 840,000 new homes completions in the five years to 2028/29, 42% short of the Government target of 1.5 million."

Savills further highlights that Housing Associations are under increasing financial pressure, which continues to limit their capacity to acquire or deliver new homes. Rising maintenance costs, falling rental income, and elevated construction expenses are all contributing factors. Although grant-funded affordable housing remains the most effective route to boost delivery, future output will depend heavily on the level of funding allocated under the new Affordable Homes Programme. In parallel, policy intervention will be required to help Housing Associations rebuild financial capacity and sustain demand for new housing.

Rental Market:

Supply-Demand Mismatch Persists Despite Slowing Growth in Rents

United Kingdom's rent price index:

Data Source: OECD.

Rental inflation across the UK has continued to moderate since reaching a peak in March 2024. According to the latest data from the Office for National Statistics (ONS), the Private Index of Private Rents (PIPR) recorded a 7.0% annual increase in May 2025, down from 8.7% in May 2024 and 7.2% in May 2023. The deceleration has been most pronounced in Scotland, where the annual rise in private rents slowed to 4.5%, compared with 9.1% a year earlier. In England, growth also eased, from 8.6% in May 2024 to 7.1% in May 2025. Rent inflation in Wales remained broadly stable, registering 8.5% in May 2025 versus 8.6% in the previous year. The most recent figures for Northern Ireland similarly point to a gradual softening in rent growth, with the annual rate falling to 7.7% as of March 2025.

Commenting on reported developments, the ONS notes that since PIPR measures the average price change of the entire privately rented stock rather than just new lets or advertised rents, the most recent market shifts take time (around 6 months) to reflect in the index fully.

Data Source: ONS.

In the ten years since the ONS statistical series started, the average private rent in Great Britain increased by nearly 47%, reaching GBP 1,351 (USD 1,806) in May 2025. By unit size, the average monthly rent stood at:

• GBP 1,088 (USD 1,454) for one-bedroom units,
• GBP 1,233 (USD 1,648) for two-bedroom units,
• GBP 1,384 (USD 1,850) for three-bedroom units,
• GBP 2,038 (USD 2,724) for units with four bedrooms or more.

As in previous years, the highest average rents, exceeding GBP 1,000, were observed in the English regions of London, the South East, East of England, and the South West. The North East reported the lowest average rent level.

Average private rent, by submarket:

Market fundamentals remain defined by a persistent imbalance between strong tenant demand and limited rental supply. According to the RICS May 2025 survey, following a temporary lull in late 2024 and early 2025, tenant activity had regained momentum, reaching its highest level in several months. Concurrently, the number of new landlord listings continued to decline, exacerbating supply shortages. "In keeping with this widening mismatch, near-term expectations for rental prices ticked up noticeably in the latest results, with a net balance of +43% of respondents anticipating an increase over the coming three months (the strongest reading since October 2023)", the report commented.

Regulatory developments are emerging as a key factor shaping market conditions. Cushman & Wakefield highlights that recent tax reforms have already led some landlords to exit the sector, while the proposed Renters' Rights Bill may further accelerate this trend. The legislation-expected to impose stricter requirements for regaining possession, limit rent increases, and introduce greater uncertainty in tenancy terms-could dampen investment sentiment and further constrain supply. Should these changes be implemented, experts anticipate intensified upward pressure on rents, despite mounting affordability challenges.

Looking ahead, experts from Cushman & Wakefield expect "the market to settle into a more sustainable growth path, with rental increases averaging around 3% per annum over the medium term". While structural undersupply, particularly in London, will continue to support headline growth, affordability constraints are seen to act as a long-term ceiling on further rental uplift.

Mortgage Market:

Lending Activity Rebounds as Monetary Policy Eases

United Kingdom's mortgage loan interest rates:

Data Source: Bank of England.

In May 2025, the Bank of England (BoE) lowered the bank rate from 4.5% to 4.25%, marking its fourth reduction since interest rates peaked at 5.25% in 2024. In its latest monetary policy statement, the central bank stated that "there has been substantial progress on disinflation over the past two years, as previous external shocks have receded, and as the restrictive stance of monetary policy has curbed second-round effects and stabilised longer-term inflation expectations." The BoE added that "based on the Committee's evolving view of the medium-term outlook for inflation, a gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate."

Data Source: BoE.

As of April 2025, the average effective interest rate on new mortgages stood at 4.49%, down from 4.74% a year earlier, yet still significantly above the 1.82% level recorded during the same period in 2022 and prior. Similar trends were observed across both floating- and fixed-rate lending products, with the exception of those with initial rate fixation periods (IRFs) of five to ten years.

According to the latest BoE data on quoted rates, the most competitive mortgage offers are currently available on low loan-to-value (LTV) products. As of May 2025, the weighted average rate on a new two-year fixed mortgage was 5.09% for 95% LTV, 4.81% for 90% LTV, 4.5% for 85% LTV, 4.19% for 75% LTV, and 4.09% for 60% LTV.

Effective interest rates on mortgage loans to individuals, monthly weighted average:

At the same time, the average effective interest rate on existing mortgages has not yet been affected by the recent trend shift. It remains elevated above the comparable periods a year and two years ago, standing at 3.86% as of April 2025.

Angela Kerr, Director at HomeOwners Alliance, indicated that further rate cuts by the Bank of England's Monetary Policy Committee are widely expected in 2025. However, Governor Andrew Bailey has warned that the future path of UK interest rates is becoming increasingly uncertain due to the impact of US trade tariffs. He also reaffirmed expectations that UK wage growth will ease in the coming months, potentially reinforcing the Committee's confidence in lowering rates. Nonetheless, the direction of monetary policy will depend on a range of domestic and international developments.

Note: Based on data on quarterly lending to individuals secured by dwellings, not seasonally adjusted.
Data Source: BoE.

Following an extended contraction, mortgage approvals continued to recover. In 2024, the BoE reported a total of 1,239,502 loans amounting to GBP 262.9 billion (USD 335.9 billion), representing a 28.1% increase year-on-year. By the end of Q1 2025, the total value of new approvals for house purchases, comprising approximately 65% of all approvals, reached GBP 44.4 billion (USD 55.9 billion), reflecting a 16.9% rise compared to the same period in the previous year.

Despite the positive annual figures, April saw a 10% month-on-month decline in total mortgage approvals on a non-seasonally adjusted basis. This followed an increase in stamp duty, which prompted a surge in mortgage applications in the preceding months as borrowers sought to complete transactions ahead of the change.

Market sentiment remains cautiously optimistic. Simon Gammon, Managing Partner at Knight Frank Finance, expressed confidence in rising activity over the course of the year, supported by declining mortgage rates. He stated, "Falling mortgage rates will fuel a rise in activity <…> providing volatility in global trade policy de-escalates and the UK's economic outlook remains on track."

The total value of outstanding mortgages held by the UK financial system reached GBP 1.66 trillion (USD 2.15 trillion) in Q1 2025, reflecting an annual growth rate of 2.6% over the same period in the previous year.

According to EY's latest forecast, UK mortgage lending growth is expected to more than double in 2025, increasing from 1.5% (net) in 2024 to 3.1% (net), supported by falling interest rates and improved consumer confidence. Growth is projected to stabilize at 3.2% (net) in 2026, as elevated house prices and higher borrowing costs continue to weigh on the market.

Martina Keane, EY UK & Ireland Financial Services Leader, noted that if interest rates are reduced further as expected, borrowing costs should decline and household spending capacity may improve, supporting a recovery in mortgage lending. However, she cautioned that "optimism must remain measured," citing persistent geopolitical tensions and uncertainty surrounding upcoming UK tax increases as key risks to market confidence and lending growth.

Measured against the broader UK economy, the mortgage market has continued to moderate following the pandemic-driven surge in 2020. As of 2024, the market's size had declined to 57.7% of GDP at current prices.

Note: Based on data on quarterly net lending to individuals secured by dwellings, not seasonally adjusted.
Data Sources: BoE, OECD.

Socio-Economic Context:

Economic Stabilization Amid Global Volatility and Domestic Policy Shifts

The UK economy continues recovering after a slowdown during the pandemic, from negative 10.3% in 2020 to 1.1% in 2024. The International Monetary Fund (IMF) projects real GDP growth to reach 1.2% in 2025 and 1.4% in 2026, supported by easing monetary conditions, rising household wealth, and improving business and consumer confidence. However, risks to the outlook persist, including the potential for tighter-than-expected financial conditions and elevated precautionary savings, which could constrain private consumption. In addition, ongoing global trade uncertainty may weigh on growth through reduced investment, supply chain disruptions, and weaker external demand.

EY presents a more cautious assessment, forecasting GDP growth of 0.8% in 2025 and 0.9% in 2026, citing concerns over global uncertainty and trade-related risks. Nevertheless, Anna Anthony, EY UK & Ireland Managing Partner, notes that "there are still grounds for optimism," pointing to the resilience of a services-led economy and the potential uplift from gradual interest rate reductions.

Inflation has eased significantly, with Consumer Price Index (CPI) inflation falling from 9.1% in 2022 and 7.3% in 2023 to 2.5% in 2024, approaching the Bank of England's 2% target. As of May 2025, CPI stood at 3.4%, according to the ONS. The IMF expects inflation to moderate further in the second half of 2025, reaching 2.2% by 2026.

Data Source: IMF.

In the labor market, the unemployment rate rose to 4.5% in Q1 2025, higher both quarter-on-quarter and year-on-year, and remains above pre-pandemic levels. BoE anticipates little change over the medium term, with the unemployment rate expected to remain around 5% through 2028.

The vacancy-to-unemployment ratio, a key measure of labor market tightness, stood at 0.5 in Q1 2025, down from 0.6 a year earlier and 0.8 two years ago, yet still elevated compared to the 0.4 average seen between 2009 and 2019. Jon Holt, Group Chief Executive and UK Senior Partner at KPMG, remarked: "Uncertainty continues to weigh on business leaders as they navigate cost pressures, rapid technological change, and global risks. They will be looking for clarity on how new trade agreements, public spending plans, and the Modern Industrial Strategy will support growth."

Data Source: ONS.

In June 2025, Chancellor Rachel Reeves announced her first multi-year Spending Review, allocating over GBP 2 trillion (USD 2.7 trillion) across government departments for the period 2025-2029. This includes a record GBP 39 billion (USD 52.1 billion) for a 10-Year Affordable Homes Program, estimated 65% increase in annual affordable housing funding compared to the previous cycle.

The Review also earmarks GBP 4.8 billion (USD 6.4 billion) in financial guarantees for the period 2026-2030, alongside targeted infrastructure and land remediation grants aimed at stimulating private sector housing investment. A permanent, UK-wide Mortgage Guarantee Scheme will launch in July 2025 to support low-deposit buyers. In addition, GBP 13.2 billion (USD 16.6 billion) will be directed to the Warm Homes Plan (2025-2030), and GBP 950 million (USD 1.3 billion) will support the fourth round of the Local Authority Housing Fund to expand access to quality temporary accommodation. Together, these initiatives are expected to support housing supply, facilitate access to home ownership, and encourage private sector investment in housing.

Sources:

1. UK Government
   1. Stamp Duty Land Tax: https://www.gov.uk/
   2. Spending Review 2025: https://www.gov.uk/
2. UK Parliament
   1. Renters' Rights Bill: https://bills.parliament.uk/
3. Bank of England (BoE)
   1. Interest Rates and Bank Rate: https://www.bankofengland.co.uk/
   2. Monetary Policy Report - May 2025: https://www.bankofengland.co.uk/
   3. Monetary Policy Summary - May 2025: https://www.bankofengland.co.uk/
   4. Household Credit: https://www.bankofengland.co.uk/
   5. Effective Interest Rates: https://www.bankofengland.co.uk/
   6. Quoted Household Interest Rates: https://www.bankofengland.co.uk/
   7. Money and Credit - April 2025: https://www.bankofengland.co.uk/
4. Office for National Statistics (ONS)
   1. Inflation and Price Indices: https://www.ons.gov.uk/
   2. Unemployment: https://www.ons.gov.uk/
   3. Private Rent and House Prices, UK: June 2025: https://www.ons.gov.uk/
   4. House Building, UK: Permanent Dwellings Started and Completed by Country: https://www.ons.gov.uk/
   5. Vacancies and jobs in the UK: June 2025: https://www.ons.gov.uk/
5. HM Revenue & Customs (HMRC)
   1. Property Transactions in the UK: https://www.gov.uk/
6. National Archives, UK
   1. The Building Regulations etc. (Amendment) (England) Regulations 2023: https://www.legislation.gov.uk/
7. Nationwide Building Society
   1. Annual House Price Growth Steady in March: https://www.nationwidehousepriceindex.co.uk/
8. Royal Institution of Chartered Surveyors (RICS)
   1. UK Residential Market Survey, May 2025: https://www.rics.org/
9. International Monetary Fund (IMF)
   1. Country Overview: United Kingdom: https://www.imf.org/
   2. Mission Concluding Statement, May 2025: https://www.imf.org/
10. HomeOwners Alliance
    1. Mortgage rate predictions 2025: Are mortgage rates going down?: https://hoa.org.uk/
11. EY
    1. Growth in UK mortgage lending to double this year: https://www.ey.com/
    2. Trade uncertainty set to weigh on UK growth over the next two years: https://www.ey.com/
12. KPMG
    1. KPMG and REC, UK Report on Jobs - June 2025: https://kpmg.com/
13. PWC
    1. PwC Construction & Housebuilding Outlook - H1 2025: https://www.pwc.co.uk/
14. Savills
    1. UK Housing Market Update - May 2025: https://www.savills.co.uk/
    2. UK Housing Market Update - June 2025: https://www.savills.co.uk/
    3. Housing Completions Forecast for England: https://www.savills.co.uk/
15. Knight Frank
    1. UK Residential Market Update: https://content.knightfrank.com/
    2. Transactions to Recover Faster than Prices after Stamp Duty Slump: https://www.knightfrank.com/
16. CBRE
    1. UK Residential Market Figures May 2025: https://www.cbre.co.uk/
17. Cushman & Wakefield
    1. Residential Forecast 2025: https://www.cushmanwakefield.com/
18. S&P Global
    1. United Kingdom 'AA/A-1+' Ratings Affirmed; Outlook Stable: https://disclosure.spglobal.com/
19. Fitch Ratings
    1. Fitch Affirms United Kingdom at 'AA-'; Outlook Stable: https://www.fitchratings.com/
20. Property Investor News
    1. Housebuilding is Still Moving in The Wrong Direction: https://property-investor-news.com/