The British housing market shows early signs of recovery, with improving lending conditions expected to encourage buyers and boost the stalling development activity next year, while the new government allocates additional funding to address housing shortages.

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

According to the latest data by Nationwide Building Society, the annual rate of house price growth in the UK accelerated in Q3 2024, reaching 2.48% year-on-year compared to 1.15% in the previous quarter. This increase places the average house price at GBP 266,640 (USD 346,781), just 2.4% below the all-time high of GBP 273,235 (USD 355,358) recorded in Q3 2022. When adjusted for inflation, house price dynamics remained stable, marginally declining by 0.44% year-on-year.

The housing market has demonstrated resilience and appears to be in a recovery phase, albeit subdued. James Roberts of Avision Young UK commented: "Overall, pricing has held up remarkably well over the year given the extent of the headwinds; interest rates rising from 1.25% on June 24 to 5%, the short-term shock of the mini-budget, ongoing pressure on costs of living and lackluster economic performance."

United Kingdom house price annual change:

Regionally, all UK submarkets except East Anglia experienced positive price growth. Northern England continued to outperform the South, reflecting greater affordability and accessibility in the context of high (although improving) mortgage costs. London remained the most expensive area, with an average price of GBP 524,685 (USD 682,384), nearly double the national average.

Average house price, by submarket:

Looking ahead, Savills UK predicts a 4% rise in mainstream house prices in 2025, up from an earlier forecast of 3.5%, and projects a 23.4% increase by 2029 as mortgage rates ease and market confidence returns. Lucian Cook, Savills' Head of Residential Research, noted that declining mortgage costs have boosted buyer confidence, underpinning recent price growth. While affordability improvements may support further development, the market remains sensitive to fluctuations in debt costs and property taxation changes.

Recent market activity indicators suggest gradual progress compared to the same period last year, with a steady upward trend observed since early 2024. The October 2024 residential market survey by the Royal Institution of Chartered Surveyors (RICS) underscores this momentum, highlighting positive pricing measures and the most optimistic expectations for future price growth expressed by the respondents since September 2022.

Residential property transactions increased by 3.3% in the first nine months of 2024 compared to the same period in 2023. September figures reveal a 2.0% year-on-year increase, though transactions remain 7% below the pre-pandemic average (2014-2018). Experts anticipate that this gap could close in the coming months as market conditions strengthen.

Housing starts and completions remain significantly below long-term averages, primarily due to ongoing challenges in the private housebuilding sector. Rising construction costs, elevated interest rates, and reduced buyer demand over the past year have hindered project viability. Nevertheless, industry experts are optimistic about 2025, expecting improved consumer confidence, increased household spending, and supportive fiscal measures to drive recovery.

Interest rates on new loans remain elevated, though the peak seems to have passed following two 25-basis-point rate cuts by the Bank of England (BoE) in August and November 2024. Mortgage approvals rose by 23.5% in the first nine months of 2024 compared to the same period in 2023, indicating a more stable recovery in the housing market.

The rental market continues to demonstrate significant strength. The Office for National Statistics (ONS) Price Index of Private Rents reported an 8.4% year-on-year increase in average private rents in October 2024, driven by a persistent imbalance between supply and demand as well as increasing barriers to homeownership.

Following a substantial slowdown in 2023, the UK economy is returning to moderate growth, with inflation approaching target levels. The new government formed after the July 2024 general election plans to increase growth potential through reforms in various sectors, as well as public and private investments, including additional funding for housing development across the country.

Historic Perspective:

From Rapid Growth to Stabilization

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 BoE's 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 dropping as low as -4.7% year-on-year in Q3 2023. 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.

Data Source: Nationwide BS.

Demand Highlights:

Gradual Recovery in Buyer Activity Amid Improving Lending Conditions

In September 2024, 94,800 residential property transactions (not seasonally adjusted) were completed in the UK, according to the HM Revenue & Customs (HMRC) figures. September is traditionally a quieter month, as families often aim to complete moves before the start of the school term. However, the easing of mortgage rates following August's base rate cut likely encouraged some buyers. Year-on-year, sales completions increased by 1.98% compared to September 2023, though they remained 6.75% below the 2017-2018 average. Experts from Savills UK noted: "The gap against pre-Covid norms is likely to close over coming months. The further base rate cut in November will allow mortgage rates to fall and support activity in the market."

Data Source: HMRC.

Over the first nine months of 2024, a little over 785,000 residential property transactions were registered across the UK, reflecting a 3.3% year-on-year growth compared to the same period in 2023. England accounted for the majority of transactions (84%), while Wales recorded the highest year-on-year growth at 5.57%.

Industry experts predict an increase in buyer activity, though some short-term turbulence remains possible. The market continues to be sensitive to fluctuations in borrowing costs and changes to property taxation, which could disrupt activity in the short term. Lucian Cook, Head of Residential Research at Savills, commented: "We expect increased demand to primarily come from more people trading up the market; the second and third steppers who have put plans on hold in a higher interest rate environment."

Residential property transactions, by submarket:

The October 2024 RICS UK Residential Market Survey, based on insights from industry professionals, indicated further increases in agreed sales and new buyer inquiries. The headline net balance for new buyer inquiries registered at 12% in October, slightly lower than the 13% recorded the previous month, marking the fourth consecutive month of positive readings.

For agreed sales, 9% of respondents reported an increase in sales volumes during the latest survey period, up from 5% in the previous month. This marked the third consecutive positive reading after a prolonged period of negative results over the past two years.

These figures suggest a gradual improvement in the market. According to RICS, falling interest rates and the rush to complete transactions before Stamp Duty thresholds change in March 2025 are likely supporting market activity. However, RICS experts warn that the recent rise in bond yields, following the Autumn Budget, could create "something of a headwind as it feeds through into general lending conditions." Activity is expected to remain brisk in the short term but could slow once transaction costs increase in April.

Supply Highlights:

Construction Costs and Subdued Demand Stall Activity; Optimism Grows for 2025

In Q2 2024, housing starts in the UK reached 31,660 dwellings, an increase of 6.4% compared to Q1 2024, according to the Office for National Statistics (ONS) reporting. On a year-on-year basis, the indicator declined by 60.3%. This sharp drop is mainly attributed to the expiration of the transition period into new building regulations in June 2023, which prompted developers to bring forward project commencements prior to October 2023 to avoid increased compliance costs. Consequently, housing starts peaked in Q2 2023, followed by significantly lower levels from Q3 2023 to Q1 2024. At the same time, housing completions in the second quarter of the year amounted to 51,960 dwellings, representing a 27.8% rise from the previous quarter and a 9.1% increase compared to Q2 2023.

For the 2023/24 financial year (April 2023 to March 2024), housing starts totaled 162,130, demonstrating a year-on-year decline of 21.1%. Completions during the same period were estimated at 188,237, representing a drop of 10.7% from 2022/23.

Data Source: ONS.

The largest share of construction activity was concentrated in England, accounting for 80.6% of total housing starts and 85.7% of total completions, followed by Scotland with 10.6% of starts and 8.8% of completions, respectively.

New dwelling starts and completions by submarket:

Dr. David Crosthwaite, Chief Economist at The Building Cost Information Service (BCIS), commented: "On the face of it, both the quarterly housing starts and completions data look positive, although the annual data for starts is a little more concerning. Housing starts by private enterprises, the main provider, are still hovering around Covid levels and are well below the long-term trend."

This decline is mainly attributed to rising construction costs, elevated interest rates, and reduced buyer demand, which have affected the financial viability of new developments. "The private housebuilding sector, in particular, has been challenged by high mortgage costs and building material, product, and labor inflation. Additionally, investors continue to seek clarity on key objectives, such as unlocking planning constraints, incentivizing increased output from volume housebuilders, creating conditions to enable SMEs to thrive, and developing viable labor force, skills, and productivity strategies," highlights PwC UK's latest Construction and Housebuilding Outlook.

Looking ahead, industry forecasts suggest a more optimistic outlook from 2025 onward. According to Glenigan, a leading construction industry intelligence provider, further reductions in interest rates are expected to boost housing starts from spring 2025, although a full recovery to pre-downturn levels may take longer. Allan Wilen, Economic Director at Glenigan, stated: "The construction sector is on track for growth from 2025, fuelled by a combination of improved consumer confidence, increased household spending, and strategic fiscal changes announced in the recent Budget. These factors will drive demand in private housebuilding, as potential buyers will feel they have greater purchasing power. In turn, this will be passed onto property developers and investors, prompting a likely uptick in supply."

The new government's plans for public housing construction also remain ambitious. The 2024 Labour Manifesto set out a target to deliver "1.5 million new homes over the next parliament" to address the ongoing housing shortage. A central focus is on expanding social rented housing, with a commitment to deliver "the biggest boost in affordable and social housing in a generation".

However, achieving this target may prove challenging. According to the latest analysis by the New Economics Foundation, the government will need to increase the annual construction of social housing tenfold by 2027/28 to meet its goals. The research estimates that private developers across the country are expected to contribute no more than 170,000 new homes annually by the end of the decade, underscoring the critical need for substantial public sector intervention to bridge the gap.

Rental Market:

Strong Growth in Private Rents Fueled by Demand-Supply Imbalance

While showing signs of slowing on the regional level, rental inflation in the United Kingdom remains quite elevated, reflecting a range of factors, such as reduced demand for home purchases, constrained supply of rental properties, and landlords passing higher mortgage costs to tenants due to the impact of high interest rates throughout 2022 and 2023.

The nationwide price index of private rents (PIPR) reported by the ONS showed an 8.7% year-on-year increase in October 2024, up from 8.4% during the same period in 2023 and 5.2% in 2022. The accelerated growth appears to be driven by England, where the annual increase in private rents reached 8.8%, compared to 8.1% in October 2023 and 5.1% in October 2022. At the same time, the growth in Wales (7.9%) and Scotland (6.6%) slowed down from the respective 9.7% and 11.5% last year. The latest available data for Northern Ireland also shows a gradual ease of rental inflation this year, reaching 9.0% in August 2024.

Among the English regions, in the twelve months to October 2024, the strongest growth of private rents, above the country average, was observed in London (10.4%), North West (9.7%), and East Midlands (9.1%). The slowest growth was observed in Yorkshire and The Humber (5.9%).

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 nine years since the ONS statistical series started, the average private rent in Great Britain increased by nearly 39% and reached GBP 1,307 (USD 1,705) in October 2024:

• GBP 1,049 (USD 1,368) for one-bedroom units,
• GBP 1,190 (USD 1,552) for two-bedroom units,
• GBP 1,338 (USD 1,745) for three-bedroom units,
• GBP 1,984 (USD 2,588) for units with four bedrooms or more.

Regionally, the highest average rents exceeding GBP 1,000 were reported in the English regions of London, East of England, South East, and South West. The lowest average rent level was reported in the region of North East.

Average private rent, by submarket:

In general, demand continues to outpace supply in the UK rental market, with significantly more people looking to rent than properties available. While tenant demand has come down from its record highs of 2021 and 2022, it remains at elevated levels, while landlord instructions continue falling, according to the RICS October 2024 survey. "Due to the continued imbalance between rising demand and dwindling supply across the market, a net balance of +33% of respondents expect rental prices to be driven higher over the coming three months," said RICS.

The November 2024 rental forecast from Savills also expects rents to keep growing nationwide but points out that affordability might become a speed limit in the most expensive submarkets, such as the capital: "High demand and low supply have been the influence behind the significant rental growth seen over the past few years. And at a national level, this pattern looks set to continue into 2025, with rents expected to rise above incomes again. But there are signs in some markets, especially London, that affordability constraints are starting to outweigh the supply and demand imbalance."

According to the research carried out by the Global Property Guide in May 2024, gross rental yields for residential units in the United Kingdom averaged 7.03%, slightly down from 7.11% previously reported in September 2023. Regional performance varied, with the highest yields among the assessed submarkets observed in Glasgow (8.50%) and Liverpool (8.18%), while in London the yield stood significantly lower at 5.60%.

Mortgage Market:

Interest Rates Past Peak, Net Lending to Pick Up After Contraction

While still elevated, interest rates on new loans in the UK are now past their peak observed in 2023. After keeping its policy rate stable for a year, the Bank of England (BoE) recently announced two consecutive 25 bps cuts in August and November 2024, bringing the rate to its current standing of 4.75%.

"There has been continued progress in disinflation, particularly as previous external shocks have abated, although remaining domestic inflationary pressures are resolving more slowly," said the central bank in their latest monetary policy release. "Based on the evolving evidence, a gradual approach to removing policy restraint remains appropriate. Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further."

Data Source: BoE.

The average effective interest rate on new mortgages published by the BoE reached 4.76% in September 2024, down from 5.01% a year ago but still significantly above the 2.84% level reported during the same period in 2022 and before. A similar dynamic was observed for floating- and fixed-rate loans of various initial rate fixation periods.

Based on the most recent BoE data on the quoted interest rates, the best rates are currently offered on low loan-to-value (LTV) products. For example, as of October 2024, the weighted average interest on a new 5-year fixed mortgage was 5.13% for 95% LTV, 4.08% for 75% LTV, and 3.95% 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 3.74% as of September 2024.

Industry experts cited by Financial Reporter warn against excessive optimism for new borrowers and remortgagers after the recent bank rate cuts. "Looking ahead, rates are likely to tick down slowly, rather than tumble, given the increasing divergence between fiscal and monetary policy," said Peter Stimson, head of product at MPowered Mortgages, quoted by the outlet. "[The] focus will be on whether the mood has changed in terms of how sharply rates might fall and whether the path may not be as steep or fall as far as previously expected. <…> Last week's budget and the US election have added a hint of uncertainty around future rate movements," added David Hollingworth, associate director at L&C Mortgages.

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

After a prolonged contraction, when the total value of mortgage approvals dropped by 2% year-on-year in 2022 and by a further 31.7% year-on-year in 2023, new lending started to recover, as the BoE reporting shows. In the first nine months of 2024, a total of 930,733 loans amounting to GBP 195.3 billion (USD 258 billion) were approved, which is 23.5% above the comparable period last year. As of the end of Q3 2024, the total value of new approvals for house purchases (about 68% of all approvals) reached GBP 133.5 billion (USD 176.4 billion), already exceeding the annual level previously reported in 2023.

The total value of outstanding mortgages maintained by the financial system in the UK reached GBP 1.64 trillion (USD 2.16 trillion) in September 2024, according to the BoE data, and is also expected to demonstrate annual growth at the end of this year after contracting by 0.1% in 2023. The latest forecast from EY expects the net mortgage lending to expand by 1.6% this year, 2.6% in 2025, and 3.3% in 2026 as housing affordability improves.

Sized against the British economy, the mortgage market returned to the gradual decrease trajectory after a pandemic-related spike in 2020 and moderated to 59.5% of GDP in current prices in 2023.

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

Socio-Economic Context:

Economy Returns to Moderate Growth, New Government Plans Ambitious Reforms

The UK economy is approaching a soft landing, with growth now recovering faster than expected after a slowdown from 4.8% in 2022 to only 0.3% in 2023 at the backdrop of weak household consumption as higher interest rates and cost of living pressures took their toll. The International Monetary Fund (IMF) currently forecasts the country's real GDP growth to reach 1.1% in 2024 and 1.5% in 2025, as monetary policy eases further and disinflation buoys real incomes.

"The UK's macroeconomic environment has been extremely challenging in recent years, but it appears we are now turning a corner. Although we are yet to see the full economic response to the Autumn Budget and the US election, deepening signs of economic recovery are giving firms and households increasing reason for optimism," said Anna Anthony, UK Financial Services Managing Partner at EY, in a November 2024 press release.

Consumer Price Index (CPI) inflation in the UK eased from 9.1% in 2022 to 7.3% in 2023 and is currently approaching the BoE 2% target, most recently reported by the ONS at 2.3% in October 2024.

The IMF attributes the recent rapid disinflation to the reversal of the energy price shock and the demand impact of tight monetary policy, projecting the indicator at 2.6% in 2024 and 2.1% in 2025.

Data Source: IMF.

In parallel with confronting global challenges, the UK economy continues to adjust to the post-Brexit environment. The July 2024 IMF staff report notes: "The feared mass relocation of financial services activity from London to the EU has not yet materialized <…>. At the same time, UK firms exporting to the EU are facing challenges in adapting to new EU rules applying to non-EU countries, while importing firms face additional fees that may lead to higher food prices."

In the labor market, the unemployment rate reported by the ONS in Q3 2024 stands at 4.3% - up both in quarter-on-quarter and year-on-year terms and still above the pre-pandemic levels. The BoE forecast doesn't expect any major shifts in the near future and sees the indicator at 4.2% in Q4 2024, falling only slightly to 4.1% by Q4 2025. In the longer term, the government Office for Budget Responsibility (OBR) expects unemployment to fall to 4.0% in 2026 before returning to its estimated structural rate of 4.1% cent in 2028. 

At the same time, the vacancy-to-unemployment ratio indicating the general labor market tightness stood at 0.6 in Q3 2024, based on the ONS figures, down from 0.7 a year ago and 1 two years ago, but still elevated compared to a 0.4 average in the 2009-2019 decade. The IMF staff report points to a possible impact of Brexit on this constraint in market flexibility: "Without access to price-responsive EU workers, the UK labor market is less flexible, with non-EU immigration only partially compensating."

Data Source: ONS.

In September 2024, Fitch Ratings affirmed the United Kingdom's 'AA-' standing with a stable outlook, citing the country's large, diversified, and flexible economy, credible macroeconomic policy framework, and deep capital markets. These strengths, however, are set against high public and external debt burden, and high debt service costs relative to peers, Fitch Ratings noted.

The general election held in the UK in July 2024 resulted in the victory of the opposition Labour Party, led by Keir Starmer, over the previously governing Conservative Party. The Labour Party's large parliamentary majority is now expected to ensure near-term political stability after an unusually volatile period that saw three different Conservative prime ministers in less than two years.

The new government's Autumn 2024 Budget, among other measures, features a GBP 5 billion (USD 6.6 billion) investment in housing supply in 2025-2026 (including GBP 500 million of additional funding for the Affordable Homes Program), which is expected to support the delivery of tens of thousands of new homes. In addition, GBP 3 billion (USD 4 billion) support will be provided to SMEs and the build-to-rent sector by expanding existing housing guarantee schemes.

In general, the new government plans to increase growth potential through public and private investments and ambitious reforms to parts of the economy, including the "biggest employment reforms in a generation" unveiled by the Work and Pensions Secretary at the end of November 2024.

Sources:

1. UK Government
   1. Autumn Budget 2024: https://www.gov.uk/
   2. Chancellor Chooses a Budget to Rebuild Britain: https://www.gov.uk/
   3. Chancellor to Unlock Housing in First Budget: https://www.gov.uk/
   4. Biggest Employment Reforms in a Generation Unveiled to Get Britain Working Again: https://www.gov.uk/
2. Bank of England (BoE)
   1. Interest Rates and Bank Rate: https://www.bankofengland.co.uk/
   2. Monetary Policy Summary, November 2024: https://www.bankofengland.co.uk/
   3. Monetary Policy Report - November 2024: 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/
3. 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: November 2024: https://www.ons.gov.uk/
   4. House Building, UK: Permanent Dwellings Started and Completed by Country: https://www.ons.gov.uk/
4. HM Revenue & Customs (HMRC)
   1. Property Transactions in the UK: https://www.gov.uk/
5. Office for Budget Responsibility (OBR)
   1. Economic and Fiscal Outlook - October 2024: https://obr.uk/
6. National Archives, UK
   1. The Building Regulations etc. (Amendment) (England) Regulations 2023: https://www.legislation.gov.uk/
7. Labour Party
   1. Change Labour Party Manifesto 2024: https://labour.org.uk/
8. Nationwide Building Society
   1. House Price Index: https://www.nationwidehousepriceindex.co.uk/
9. Royal Institution of Chartered Surveyors (RICS)
   1. UK Residential Market Survey, October 2024: https://www.rics.org/
10. International Monetary Fund (IMF)
    1. Country Overview: United Kingdom: https://www.imf.org/
    2. IMF Staff Country Report: https://www.imf.org/
11. Building Cost Information Service (BCIS)
    1. Latest UK Housing Starts and Completions Figures: https://bcis.co.uk/
12. EY
    1. Bank Lending to UK Businesses and Households to Return to Growth This Year, and Accelerate Over 2025 and 2026: https://www.ey.com/
13. PWC
    1. PwC Construction & Housebuilding Outlook - H2 2024: https://www.pwc.co.uk/
14. New Economics Foundation
    1. Building the Homes We Need: https://neweconomics.org/
15. Savills
    1. Rental Forecasts: https://www.savills.co.uk/
    2. Average House Prices to Increase by 23.4% Over the Next Five Years: https://www.savills.co.uk/.
    3. UK Housing Market Update, November 2024: https://pdf.savills.com/
    4. The Short Term Outlook: Ready for Take-off?: https://www.savills.co.uk/
16. Avision Young UK
    1. National Housing Market Overview Q3 2024: https://www.avisonyoung.co.uk/.
17. Glenigan
    1. Construction Industry Forecast 2025-2026: https://www.glenigan.com/
18. Fitch Ratings
    1. UK Election Brings Fiscal Continuity, Efforts to Boost Economic Growth: https://www.fitchratings.com/
    2. Fitch Affirms United Kingdom at 'AA-'; Outlook Stable: https://www.fitchratings.com/
19. Financial Reporter
    1. Mortgage Rates Could Rise Despite Bank Rate Cut, Industry Experts Warn: https://www.financialreporter.co.uk/